Top 5 Tax Benefits of Rental Property

If you’re a homeowner, managing your properties can be a daunting task. Collecting rent from your tenant, performing inspections of your property regularly, or handling the basic repairing jobs will take away a lot of time from your busy schedule. So, you should hire a property management company that offers real estate management services to help you out in such cases.

Diversifying our investments is always a smart move. Let’s be honest; we’re always on the lookout for ways to save our income taxes. Did you know that rental properties or real estate investments can help you save tax? Read on to learn more about a few significant tax benefits of rental properties.

#1 Passive Activity Loss Deductions

You’d be surprised to know that homeowners can get mortgage interest deduction benefits up to $1 million per year. In fact, as a homeowner, you can take tax advantages by deducting the mortgage interest that you’ve already paid to buy your home. This kind of tax deduction is considered the largest tax deduction that taxpayers can claim during income filing. While claiming Depreciation Deduction, you’ll have to understand, the value of the land that the property sits on will not be depreciated. For example, if your land valuation is $60k and house valuation is $200k, as the homeowner, you can only deduct the building’s value, not the land’s value.

You’ll have to maintain your property, and as homeowners, you can deduct additional amounts of interest if you can prove the funds were used to maintain your home. However, you’ll have to note; you’d be eligible for the Passive Activity Loss Deduction only if your income is less than $100,000. And, if you’re married but file your income tax separately, your income should be less than $50,000 to qualify for the Passive Activity Loss Deduction scheme.

#2 Tax-Sheltered Growth

Tax-Sheltered Growth is one of the most considerable tax benefits of rental property. As homeowners, you’d like to see a growth in your property valuation each year. And in most cases, this value enhancement happens when you pay off your monthly EMIs on time on your home loan, and it also increases your equity ownership in the property.

Also, with each passing year, your property value increases either through a healthy market or via rental earnings from your home when you rent it out to someone. In the case of a rental property, your net operating income grows significantly over the years. The Internal Revenue Service won’t assess this capital gain until you decide to sell your home. Thus, your money will grow dramatically if it’s staying in the property.

#3 Tax-Free Exchanges

Suppose you’ve decided to sell off your rental property and use that money to buy another house in another state. Even in such cases, you’d be able to structure the sale as a tax-free exchange. You’d be surprised to know, according to IRS guidelines, you can carry forward your cost basis from old properties to new properties. The IRS does not consider such transactions as a capital gain, and thus you’d not be required to pay any taxes on this kind of sales. So, if you’re a homeowner and looking to get a better property at a posh location, you’d get a massive tax benefit when you’ve done such a Tax-Free Exchange.

#4 Tax-Sheltered Cash Flow

While exploring various ways to gain tax benefits, you should remember that the IRS requires you to pay taxes on the profits you’d make each year when renting out your house. Your profit calculation is quite simple; you’d have to add up all the expenses you’d have to bear for your rental house, such as essential maintenance of the property, other repairing jobs, home loan interest amount, property taxes. And, now you can subtract this amount from your gross income from rental property and your job. The final deducted amount will be your profit.

If you need to travel to maintain your property, you can also claim the transportation cost as your expense. And the entire trip’s expenses would be eligible for a tax deduction. We know, with each passing year, your property will wear out, and such property’s depreciation will enable you to write off a significant portion of your home loan amount. These small yet important steps will help you lower your tax liability to a great extent.

#5 Lawyer’s Fees Will Be Considered As Deductible Expenses

Unfortunately, there are a lot of cases that can only be settled inside the courtroom. And suppose, if you’ve to take legal action against your tenant or you’re eligible to claim your Anthony’s fee and all legal expenses as tax-deductible expenses. However, you’d be required to submit proper documentation to get tax relief for your legal costs in such situations.

Homeowners enjoy a lot of tax advantages during income tax filing. But, you’ll have to keep up with all legal documents, expense bills, maintenance invoices to support your tax dedication claims. So, if you’re planning to become a homeowner, all these tax deduction opportunities will be there for you to grab with both hands. We understand that you’re not a professional, so it’s always good to speak to a tax and investment expert so that you can claim all tax benefits of rental property.

Once you’ve purchased a property, you’d probably search for tenants, spend time in property maintenance or basic repairing jobs. Well, this is where can save your day with its property management services, where they will collect the rent, handle maintenance jobs, perform repairs and inspections on your behalf. You can check out their official website at for more information.
225 N Pace Blvd
Pensacola FL 32505

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