Most rental property investors have two common goals – to attain passive monthly income and to build equity so that they can eventually sell at a profit. But unfortunately, many of these same investors pay much more tax than they have to, which can end up “costing” a great deal of money over time. In fact, in some cases, the taxes alone could represent the fine line between earning a profit or losing money.
But, by having a good understanding of what is and isn’t tax deductible for real estate investors, you’ll know what steps to take. Some of the top tax deductions and credits for rental property owners include:
- Mortgage interest. Likely the biggest deductible expense for investors is mortgage interest. But this isn’t the only interest expense that you can deduct. For instance, according to the Tax Cuts and Jobs Act that was passed in 2018, real estate investors may now be able to deduct interest on credit cards and personal loans that are taken out for goods and services used in rental activity.1
- Property depreciation. If you own your rental property for more than just one year, you may also deduct depreciation expense. This is the case for any type of structure that you use for rental activity, such as single family homes, condos, and apartment buildings.
- Residential rental property is usually depreciated over a period of 27 ½ years.2
Personal property. Some types of personal property – such as furniture and appliances – can also be deducted when they’re used in your investment property.3
- Repairs. The cost of repairs to rental property are fully deductible in the year they are incurred – as long as they are considered “ordinary, necessary, and reasonable in amount.” For instance, repainting the building or fixing a leaky roof would qualify.4
- Home office expense. If you use a room or area in your home as office space for your rental real estate business, you can deduct home office expenses. This not only includes a portion of your rent or mortgage, but also other costs such as utilities and insurance – provided that the space is regularly and exclusively used for the business purpose, and that it is your principal place of business.5
Running a rental real estate business can be a lot of work – but it doesn’t have to be. Incorporating a property manager into your rental real estate endeavor can allow you to delegate much of the time you spend managing tenants and maintaining the property(ies) – while still receiving a regular income stream.
If you own residential rental property in Orlando and/or the surrounding Central Florida area, contact us for more details.
- Deducting Interest on Rental Property. NOLO.
- Landlord’s Guide to Tax Deducting Long-Term Assets. NOLO.
- Top Ten Tax Deductions for Landlords. NOLO.
- The Home Office Tax Deduction. NOLO.