Rocco Beatrice

Does Owning Rental Property Help You on Your Taxes?



Posted: Tuesday, July 21, 2009

by
Estate Street Partners

The answer to this question will depend on a variety of factors. The determining factors are included if you have a mortgage or own the rental property outright. In order to receive any tax breaks on property, you will need to itemize your taxes. This task should be dedicated to a CPA so it is assured that everything is done correctly and you will receive the tax benefits.

On the IRS website, you can learn how rental income should be reported when you file your taxes. There are some important things to take into consideration when filing. Always remember that any rent you receive for tenants is considered to be a source of income. If any improvements are made to the property by the tenant without charging you for those improvements, the value of the improvements is also considered to be income. If you have taken a security deposit that will not be returned, this is income.

It is very important for landlords to keep meticulous records of any and all transactions that are associated with the rental property. Even if the additional income hurts your tax return, the IRS demands complete accuracy when you report any income that resulted from a rental property.

While this may all sound overwhelming, there is a positive side. Rental properties are considered tax-deductible. This means that anything you do to maintain the rental property that incurs an expense, can be deducted from your taxes. You must have all documentation to support the claims of these expenses. If you file for a deduction, you have to support the claim with concrete proof.

It is important to know what expenses are eligible for a deduction. Basically, as  long as the expenses are related to the upkeep of the property or the administrative tasks associated with being a landlord, you can submit the expenses and claim them as a deduction. This can include any repair costs, interest that you pay for the mortgage and equity loans and the cost of advertising to find new tenants.

This does not mean that every single expense will be deducted. If you spend money that exceeds the amount of income you receive from rent, you will find that many of your expenses will not be deducted. If you have questions as to what can be deducted, it is best to consult with a CPA or contact the IRS. There is no rule that governs rental properties because every situation, and every landlord, is different.

Owning rental property can help on your taxes in other ways as well. In addition to the standard deductions, there may be other ways to save on taxes. In some cases, a landlord will obtain a home equity loan on the rental property. They will then use the proceeds to invest in insurance products that are non-taxable. This is legal and can be claimed on your taxes. You will need a qualified CPA to help with filing your taxes to make sure that your claimed deductions qualify. Rental property is a great source of extra income and it can save a lot on your yearly taxes.
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