The Tax Benefits of Owning Rental Property

The Tax Benefits of Owning Rental Property

The Tax Benefits of Owning Rental Property in San Diego

People will always need shelter; a place to lay their heads and a home to return to is essential. If you’re looking to make investments in rental property, you’re about to make a wise choice. Land assets do not depreciate unless a few factors are involved. Even if a building depreciates, the land never does. Tax benefits are one of the best ways to reduce the cost of your rental property.

Tax Benefits of Owning Rental Property

Tax Benefits of Owning Rental Property

One of the first steps to enjoying all the benefits accruing to owning a rental property is to buy a property that doesn’t have structural issues or repairs you need to spend heavily on. The only reason to spend largely on a rental property is if it will increase its value on the market. With all this in place, you can make big returns on your investments. 

However, many people worry that the tax frustrations and bills will take away the profits that owning rental property rakes in. It would surprise you to know that the tax benefits from owning a rental property just might be one of the most appealing of all the advantages.

5 Tax Advantages to Owning Rental Property

If you think you’re ready to become a landlord (understanding that it’s not always rosy with late rent payments or property damages), check out the tax benefits you stand to gain below. 


  1. You Qualify for Many Tax Deductions That Homeowners Don’t

Homeowners are entitled to only a few tax deductions, although many of them exist. Rental property owners, on the other hand, are qualified for more of these deductions. As a rental property owner, you are eligible for a tax deduction on insurance premiums, including homeowners insurance and health insurance for houseworkers. 

You can also deduct the cost of expenses of materials, suppliers, and any maintenance repairs you make on your property. You may also deduct necessary expenses, such as the ones you pay for advertising your business or utilities (like when you pay for gas and electricity) if your tenants don’t pay for this. 


  1. You’re Eligible for a Tax Deduction on Property Depreciation

One other benefit you get as a rental property owner is that you can also take tax deductions for the depreciation of your property. 

The value of a building depreciates from the moment it is put up for rent or service. Most U.S. residential property goes down in value by about 3.636% yearly over 27.5 years. For commercial property, it’s for 39 years. 

For tax deductions, it occurs over time. You do not deduct the depreciation value of land all at once. Also, the tax deductions end once you decide that you no longer want to rent your property or once you have regained the entire cost of your investment. 

You also need to know that some rules guide tax deduction for property depreciation. One of these is that it is the value of the property’s structure and the items that can depreciate within the property that can be deductible from your tax.


  1. You Can Deduct Your Travel Costs

Alongside the many deductions you can make from your taxable income, you can include travel expenses in the long list. If you own rental property outside the state where you reside and travel to manage it, you can deduct the cost of your trip from your tax.

The IRS knows that this aspect of tax deductions is easily exploited, and so they have a list of situations where this is liable. A summary of this list allows you to deduct travel costs only if you are traveling to manage, conserve or maintain your rental property or collect your rental revenue. 

You cannot deduct travel costs if you are going to improve your property as the costs from this are already recoverable from depreciation. 

If you’re wondering how home improvements differ from maintenance, here’s a good example. Lawn mowing or painting the house’s exterior counts as maintenance; installing a pool, on the other hand, is a home improvement.


  1. You Enjoy Tax-Free Exchanges

Sometimes when you buy a rental property, you may have plans to own it for a while and then sell it off to make bigger purchases. If you ever choose to sell your rental property to make bigger investment purchases, you can make the sale a tax-deferred exchange.

It doesn’t matter if it is a different type of investment or within another state. Once you follow the IRS rules accurately, you can transfer the cost basis from your former property into the new one. 

The good thing here is that the IRS will not see this as property sales. This means you don’t have to pay capital gains taxes on the new property. 


  1. Your Revenue Grows As Long as It Remains in Property Business

Sometimes, rental property gains value; this could be from a healthy market or an increase in the net operating income. Monthly mortgage payments also cause the equity ownership on the property to go up. This ensures a steady increase in your revenue as long as you leave it in the property business. 

This is mainly because as long as you don’t sell your property, the IRS does not see a capital gain. 

Bonus Benefit:

The IRS recently introduced the 20% pass-through deduction for business owners. This tax deduction allows you to remove 20% of your taxable income if you meet certain criteria as a qualified business. One of these is that your taxable income should be below $157, 500 if you’re single or $315, 000 if you’re married.

To find out more about if you qualify for the 20% pass-through deduction benefit, it’s a good idea to discuss with a tax professional. They will arm you with facts and necessary information so that you don’t miss out on huge returns.

In conclusion

Investing in rental property can fast-track your way to becoming financially independent. All you need to do is own a building and enjoy the constant stream of income monthly or annually. There’s no need to stress about hefty tax payments because you are eligible for numerous tax deductions that lessen the amount of tax payable as a rental property owner. 

All you need to do is work with professionals who are up to speed with tax trends and who will help you with complicated calculations that may deter you from maximizing your tax deduction benefits.

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