While cashing the rent check(s) can certainly be an incentive for owning investment real estate, there are other ways in which landlords can win from a financial standpoint. One of these is through the long list of tax deductions that this type of investing can offer.
When it comes to real estate investments, there are two primary types of expenses. These include current and capital. Current expenses are typically considered to be those costs that are necessary to keep the property in good working condition so that it may be used and / or resided in by tenants.
In order to qualify as a current expense, there are several criteria that must be met. For example, the cost must be “ordinary and necessary,” meaning that it is both common and generally accepted as part of the business.
Some of the items that may qualify here include the following:
- Property maintenance
- Advertising (for new tenants)
- Mortgage interest
In addition, these expenses must also be reasonable in their amount, as well as directly related to the rental activity. For instance, if you’re claiming to have paid $1,000 for a new kitchen faucet, the IRS could become suspicious.
The other type of expenses – capital – are considered to be those that increase the value of your property and / or extend its life. These costs are oftentimes for improvements to the property, and thus they must be capitalized and depreciated over time.
Speaking of time, owning rental real estate can take up quite a bit due to both property and tenant management. If you’d like to delegate these duties, then hiring an experienced property manager can be beneficial – as well as tax-deductible. For additional information on the advantages of working with a property management team in Orlando and the surrounding area, give us a call.