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Rental Property Deductions

Tax Benefits Of Rental Property





rental property deductions tax shelter

Rental property deductions are too nice to ignore. This is because of the rental property tax advantages that these homes provide which are numerous and substantial.

Bottom line, when it comes to federal tax deductions, these property investments provide you with an immense tax shelter. In fact, you'll see that there are several deductions that you can take by owning even one rental property.

I know this because I've owned rentals for several years and have taken advantage of these tax savings.

Treating Real Estate As An Investment Instead Of A Small Business

You'll achieve the largest tax savings as a real estate investor; not a small business. Real estate used as a small business includes realtors, builders, contractors and people that buy property to sell it quickly (flip homes). They have a real estate "business" and are not considered investors.

On the other hand, a real estate investor buys a property as a long-term investment, which is greater than 1 year’s time, to rent out to tenants.

By treating the property as a small business instead of an investment, you'll lose out on a substantial tax deduction called depreciation. Depreciation can be taken as a deduction to compensate the investor for the property as it ages as well as theoretical wear and tear.

You'll find that another great benefit to investing in a rental property is, in many cases, you can show a rental loss on paper, even though you made money on the rental. It gets better. If you work a W2 job, you can reduce your W2 taxable income substantially with your rental property deductions.

Tax Benefits Of Rental Property

You will take your rental property tax deductions on IRS Schedule E. This schedule is where you'll indicate your investment property income and expenses. As you can see, there are several expenses that can be taken as deductions, including "other" expenses (line item 18).

Here is a comprehensive checklist of rental property tax deductions that you can take advantage of as an investor:

  • Advertising

    This would include any form of advertising to get a tenant into your rental property. This includes signs, flyers, ads and business cards.

  • Auto

    You can deduct any mileage you drove to maintain and manage your property. For instance, you drive from your home based office (which you can set up as a landlord) to your rental property. You would be able to claim this mileage as an expense on your Schedule E.

    You may notice the key words being "maintain and manage" your property. This means if you need to drive out to the property to check on how a repair is coming along, you can write off this mileage.

    If you drive to your rental home to speak with your tenant about anything regarding the home or to collect rent, this is deductible mileage.

    Managing your property can also include doing a drive by to look at the property to ensure it’s in good standing. Just make sure you keep good mileage records including the purpose of the trip.

  • Depreciation

    Your residential rental property gets depreciated over 27.5 years. For example, if you pay $100,000 for the home, you can take a depreciation tax write-off of $3636 ($100,000/27.5 yrs) per year, which is taken as a "paper loss" against any gross income you make. This is a substantial tax deduction.

  • Cleaning & Maintenance

  • Homeowners insurance

  • Mortgage Interest

  • Property taxes

  • Utilities (if you pay them instead of the tenant)

  • Phone costs, PO Box, internet costs related to your rental property

  • Repairs & Supplies

  • Educational Expenses

    For example, you can deduct any books or courses you buy that have anything to do with rental properties

  • Real estate club dues

  • Tenant credit report fees

  • Professional fees

    This includes legal, accounting, and realtor fees

  • Management Fees

    If you pay a property management company to manage your rental property for you, you can deduct these management fees.

  • Homeowners association fees

Summary - Rental Property Deductions

I'm happy to have shared these rental property deductions with you. There is no dispute that rental properties are one of the few best remaining tax shelters you can take advantage of to achieve big time tax savings.



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