Much of the country has experienced a weakening in the local real estate market. If that is the case in your local area, now may be an excellent time to make the decision to invest in rental property. Investment real estate provides exceptional tax benefits, which can be an excellent deal. If you already own a home you may be quite familiar with many of the tax benefits offered by owning rental property for example, by using a mortgage to purchase rental property you very well may be able to write off your interest payments on your taxes.
In addition, you can tap into tax benefits you most likely haven’t heard about. Many rental property owners find that they can deduct all of the expenses incurred in the maintenance of the property. This includes repairs, utilities and insurance as well as much more. In the event you make the decision to hire a rental agent or property management, you will also have the benefit of writing off any fees paid for those services as well.
Depreciation deductions can also frequently be written off. In fact, depreciation is frequently on the of the best tools available to owners of rental property due to the fact that it provides you with the opportunity to essentially write off the largest expense associated with owning and operating rental property – the price you paid for the property excluding the land. Now that should be a no brainer for you. It should be noted that depreciation does take place over a period of time. Fore residential rental property the time schedule is 27 years, while commercial property is depreciated over a period of 39 years. Still, not a bad deal.
You can also frequently include property improvements in your cost basis and depreciate them over time as well. Repairs can typically be deducted during the year in which they occurred. Not sure whether something classifies as an improvement or repair? Keep in mind that improvements will add to the property’s value and prolong the life of the property, while a repair is intended to keep the property in good condition. It’s also important to remember that landlords are not able to assign a value to their own labor and then deduct the cost of it. In that case, hire someone else to do it.
Many landlords are also able to deduct the cost of travel, whether it’s driving or flying. In the event the travel is not local, you also have the advantage of being able to deduct such costs as hotel bills, airfare and part of the costs of meals. This should be reason #1 why you should have rental property in your favorite vacation spot!
If you choose to operate a home office in order to manage your rental property, you may also be able to deduct specific expenses such as homeowner’s insurance, utilities and home mortgage interest. In order to qualify for this tax benefit, the space assigned as your home office must serve as the primary place of business where you handle matters regarding the operation of your rental property. In essence, the home office area must be used exclusively for business and not for any other purpose. You don’t necessarily have to assign an entire room as your home office, as long as you can assign a part of the room that is definable as your home office.