Tax time is here again and you should be aware that rental income isn’t the only way to make money when you rent a property. There are many incentives and tax advantages given to rental owners that entitle you to larger profits. Some of these money saving advantages are available monthly, and some of which are available annually when filing your taxes.
Were you aware that often the entire amount of your property loan payment is tax deductible? This means that both the principle and interest payments made towards your property loan may possibly be deducted from your rental income. In addition, the interest that you pay on credit card purchases for your rental property is also tax deductible. As a real estate investor, you want the rental income to match as closely as possible to the property expenses to minimize tax liability.
Some of the other common property expenses that are tax deductible include:
- repair and maintenance costs,
- home office expenses,
- casualty or theft loss,
- all related travel to the property to make repairs or do regular inspections,
- professional fees such as an attorney or accountant,
- hazard insurance premiums,
- property depreciation beginning from year two of the rented property,
- and even a portion of your landlord association membership dues.
The government provides us these tax exemptions to encourage greater real estate investing. Real estate investing plays a strong role in the economy, from the laborers who repair and build houses, to the mortgage broker who secures the property loan. Your investment dollars help to strengthen the housing sector in many ways and these tax deductions is our government’s way of saying “thanks”.
The major key to taking advantage of the available write-offs is good record keeping. A complete year-to-date file of your properties income and expenses will help ensure accuracy and assist your tax preparer in capturing the largest possible tax deductions for your business. So start by organizing your credit card statements, mortgage and insurance statements, and receipts. In addition, always check with a tax adviser or the IRS about other returns, deductions, or advantages that may be available for your situation specifically. The tax laws change often, so consulting with a professional who is familiar with real estate investments will keep you up to date with what’s available to you as an investor. And don’t forget that their fee is a write-off!
Also, talk to each other. Real estate investors can help one another by just sharing their own experiences. The tax rules for landlords are pretty favorable. Let us learn from our peers, and the professionals, how to only pay our fair share of taxes.
Katie Poole – Hussa is a Licensed Property Manager, Continuing Education Provider and Principal at Smart Property Management in Portland, OR. Reprinted with permission of RHJ-Rental Housing Journal.