Many landlords pay more tax on their properties than they should. This is because they are ignorant of the several tax advantages and benefits of becoming a landlord. More than any other investment, there are several tax benefits available to real estate.
These benefits, many times, are the difference between losing and making a profit. This article sheds light on top benefits rental property owners get during tax time.
Mortgage Interest Deductions
Property owners can deduct the mortgage interest that comes with their home loans up to $1 million. Also, part of the borrowed money, which is part of the equity loan for their home, can be deducted. Interestingly, one need not own a house to get the deduction.
By removing the mortgage interest, landlords can utilize this tax break provided they have paid to purchase or repair their property. These are the most significant deductions available for them. In refinancing a property above its actual worth, owners of properties can remove additional interest, and fees provided the extra funds served for maintenance or improvement of the property.
They Enjoy Special Deductions Homeowners Do Not
While there are a series of deductible expenses, deductions targeted at homeowners are not much. This restriction does not exist with landlords. Also, the mortgage and interest points paid through a loan's life, property owners can enjoy deductions for various insurance premiums like health and homeowners insurance for their staff.
There is no tax break for the repair fee for anyone who rents an apartment and damages anything accidentally. On the other hand, a landlord can deduct repair costs they made for their tenants. They can also deduct utilities like electricity, gas, and property taxes that the tenants don't pay.
They can Deduct Depreciation.
Properties are bound to lose value and break down over time. Landlords also enjoy these deductions even though they cannot deduct the total depreciation at once. The depreciation will be spread over time, like 27½ for private properties and 39 years for real estate (commercial).
There are rules from Uncle Sam that guards the deduction of this depreciation. The deductible costs allowed are strictly the value of the property's structure and items inside the properties like appliances, doors, and windows. As soon as you rent the property, depreciation begins; and it ends either when the rent ends or when you already have the entire investment cost.
One, however, cannot deduct the value of the land where the property is located. As a result, for $380,000, the landlord can only deduct the building's value, not that of the land estimated at $85,000. If the house is rented for 27½ years, the annual deduction will be $10,727
Landlords can deduct Travel Costs.
It is a good idea for a landlord to embark on a periodic trip to access their property and tenant, no matter the distance covered. This is because of the opportunity to deduct the travel expenses, including parking fees and gasoline for their private car or bus tickets. Landlords can opt for the standard mileage rate rather than deducting the individual expenses for the car trip.
For landlords living in a different state from your property, the cost of air tickets, hotel rooms, rental tickets, etc., can be deducted. You can also deduct meals during the journey. Be careful when deducting expenses for trips that span over the night. It might raise some eyebrows with Uncle Sam if you deduct anything for pleasure during the journey.
Legal Fees can be Deducted
Sadly, a couple of matters need to get to the court before a reasonable agreement is reached. From a financial point of view, landlords that had to take legal actions or forcefully evict their tenants have the upper hand.
This is because of the ability to deduct their attorney and court fees, unlike the tenants.
Conclusion
Landlords and property owners have a lot to enjoy when it comes to tax. Provided they have their receipt or other documents as proof to support the deductions, they can significantly bring down their tax bill.
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