05 Feb Rental Property Tax Deductions
The upfront costs of purchasing rental properties can be staggering. However, people usually accept this because of the potential for long-term income that will eventually outgrow the start-up costs. If you’re spending a significant amount of money on rental property expenses each year, this loss can cut deeply into your investment’s return. However, with the help of a Castle Rock Property Management company, you can write off management fees and minimize other losses. Here are some tax deductions associated with owning rental properties that you may qualify for.
[DISCLAIMER: Integrity Realty & Management is not an accounting firm nor are any of its associates licensed CPA’s. This article is provide for information purposes only and you are encouraged to seek the counsel of an appropriately licensed tax professional]
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Travel
You can deduct your travel expenses related to your rental properties. If you do the upkeep on your own Castle Rock rental property, then you will probably be doing a lot of driving to mow, repair, and do general maintenance on your properties. If you live out of the area and are using a Castle Rock Property Manager to look after your property, you can still deduct travel expenses such as flights, rental cars, and hotels should you decide to come visit your property. There are two ways to calculate the amount you deduct on vehicle expenses. You can deduct the actual amount spent on gas, repairs, and maintenance on your vehicle(s) or you can use the IRS mileage rate, which is currently 56 cents per mile. You must use the same method year after year, so you should consider which would give you more deductions.
Depreciation
Depreciation is a large part of what you can deduct from taxes on your rental property. Since you can’t deduct what you paid for the building or any improvements you might make, the IRS allows you to deduct what is more or less the yearly wear and tear, or the yearly reduction in value, as something called depreciation. This is calculated as the cost of the building (excluding land) divided by 27.5, since the IRS decided it would take 27.5 years for the building to either be rebuilt or completely repaired.
Interest
Unless you paid the entirety of your rental property’s cost upfront, you probably took out a mortgage in order to purchase it. The IRS will let you deduct the interest payments on this loan. This will be an enormous deduction that simply cannot be overlooked. To illustrate, let’s say you took out a $200,000 loan with a 30-year term. You paid 20% as a down payment ($40,000), and the loan’s interest rate is 4.5%. By the time you finish paying off your loan, you will have paid $226,850 in interest-more than the original cost of the property. This is all tax deductible in the year the interest is paid.
Insurance
If you have an insurance plan for your rental property, such as homeowners or flood insurance, you may deduct these premiums from your taxes. If you are an investor with a large portfolio of rental properties, you may have employees who you pay to manage your properties. Be sure to deduct what you pay for their health and workers’ compensation insurance.
Hiring Professionals
If you choose to hire a Castle Rock Property Management company, any fees they charge you are deductible. If you decide to manage it yourself, you will most likely still need to pay an attorney to draw up lease agreements and occasionally file an eviction. Unless you are well versed in tax preparation, you will probably want to hire an accountant to take care of your taxes. All of these payments are tax deductible so be sure to maintain accurate records.
