How to reduce real-estate investment taxes on your rental property

Reduce Your Real-Estate Investment Taxes

Owning a rental property can be a great source of passive income, but it’s also taxable income, just like the paycheck you receive each month from work. Don’t let this scare you away from the landlord business, however. The good news is there are numerous ways to reduce these real-estate investment taxes, helping you maximize profit and make owning a rental property worth your time, effort and money. Follow these four tips to take advantage of the tax benefits available to real-estate investors this year.

Hire an experienced CPA

A Certified Public Accountant (CPA) who is familiar with the real-estate industry can be a great resource to anyone who owns rental property. Always talk to your CPA before making big decisions concerning your real-estate investment or when trying to better understand the tax benefits available to you. This is especially important if you’re not sure what’s considered legal and what could be frowned upon by the IRS.

Keep a record of all possible deductions

Owning a rental property is like running a small business, and you get to deduct the money you put into your investment. Repairs, advertising costs, mortgage interest, insurance payments and even real-estate taxes are all considered deductible expenses.

Deduct for depreciation

Even if you take good care of your rental property, it’s bound to slowly break down over time. The decrease in your home’s value is referred to as depreciation, and you can deduct the property’s gradual decline each year. As a landlord, you can also deduct depreciation for parts of the property, such as the carpeting or a fence.

Track your time 

Married couples jointly earning $150,000 or more per year aren’t able to reap the benefits of tax deductions. One exception to this rule is if you spend more than 750 hours working on your rental property business. Keep a record of hours spent working on your real-estate investment in case your joint annual income surpasses $150,000.

If you’ve decided to enter the real-estate investment business, take some time to research the various tax benefits to maximize the profits you’ll receive each year. These four tips provide a brief overview of tax advantages for landlords to help you get started.

Recommended Posts