The Tax Benefits of Owning Real Estate

Homeowners are generally aware of the tax benefits they receive from owning their house. Often, having a home is the main reason to itemize your deductions rather than taking the standard deduction. Some of the major deductions you can take advantage of as a homeowner include mortgage interest and property taxes.

What many do not realize is that these same deductions are available when you own rental properties. But that is only the beginning; there are numerous other deductions you can benefit from as a landlord, and these deductions can often turn the property from a break-even or losing proposition into an overall money-maker.

Aside from interest and property taxes, here are some of the other deductions landlords can claim on a rental property:

Insurance

If you own a rental property, you will need a modified version of a homeowner insurance policy that covers the risks of having tenants. In most cases, this type of policy will cost a little more than a typical homeowner policy, but the premiums are fully deductible.

Depreciation

One of the largest rental property deductions is depreciation. This means the property owner is able to deduct a portion of the cost of the property over a set number of years. Depreciation periods are typically 27.5 years, so based on that number, here is a simple example; if the cost of your rental property was $275,000, then a 27.5 year depreciation schedule would mean an annual deduction of $10,000.

Maintenance and Repairs

If you own rental property, you need to factor in maintenance and repairs to the property. The best way to do this is to set aside a certain amount out of the rent each month ($50 or $100 or more) into a special fund to cover these costs. The good news is that when a repair comes up, the costs are fully deductible. This would include materials and any labor performed by contractors or subcontractors.

Mileage

Any driving you do to or from the property for inspections and other reasons qualifies for vehicle maintenance deductions. You can choose to deduct a percentage of the actual maintenance and repairs on your vehicle, or a much easier way is to track the mileage you put on the vehicle and deduct at the current annual mileage deduction rate. For 2016, that rate will be 54 cents per mile.

Home Office

Landlords who meet the qualifications can claim the home office deduction. In general, this means having an office in your home that is used exclusively and regularly for your rental property business. If you qualify, you can deduct a portion of your home expenses, or take the simplified deduction of $5 per square foot up to a total of 300 square feet.

Travel

Out of town travel is not all that common for a rental property business. However, if you happen to leave town for a conference or another function related to your business, you can deduct transportation, hotels, and 50% of meals and entertainment.

Losses

If you have losses not covered by insurance, these are deductible as well. An example would be if your insurance policy has a $1000 deductible and you have $500 worth of vandalism done to the property, you would need to pay for this out of pocket, and you could deduct it on your taxes.

Marketing/Advertising the Property

Finding a tenant typically requires some type of advertising. The cost to advertise the property for rent can be fully deducted.

Professional Services

You are allowed to deduct the fees of any professionals you pay to help manage your rental property business. This would include attorneys, property managers, and CPAs/accounting firms.

To ensure you are taking full advantage of all the deductions available to you, it is best to speak with a local tax professional.