There are many excellent reasons to invest in real estate. It’s a great way to diversify your portfolio, it provides outstanding short-term and long-term gains, and it comes with less risk than, say, the stock market.
There are also tax benefits.
The advantages of owning rental properties go beyond earning rental income. As a real estate investor with a portfolio of rental properties, you are entitled to certain tax deductions that can significantly reduce your tax exposure and lower your tax bill.
We aren’t tax experts, but we do have a lot of experience managing properties for investors like you. So, we’re providing a comprehensive guide on some of the most important tax deductions available to rental property investors.
Deducting Mortgage Interest on Financed Rental Homes
One of the main benefits of owning a rental property is the ability to deduct mortgage interest.
You can claim a deduction for the interest you paid on your mortgage loan. This tax deduction applies even if the property’s rental income does not cover all of your mortgage payments. However, it is important to note that the mortgage interest deduction cannot exceed the amount of interest paid during the tax year.
Claiming Property Repairs and Maintenance
Rental property maintenance comes with the territory when you’re investing in rental real estate. The good news is that property repairs and maintenance costs are tax-deductible. This includes regular maintenance like plumbing and electrical repairs, pest control, and landscaping maintenance. These costs are typically deductible in the year that they were incurred.
Be careful not to try and deduct any improvements that you’ve made to your property. Those are different from the repairs you’ll need to make to keep the home habitable and occupied.
Depreciation Deductions Allowed by the IRS
Depreciation is the reduction in value of a property over time due to wear and tear. Rental property owners can claim depreciation as a tax deduction. Depreciation allows you to deduct a portion of the property’s value as a tax deduction each year. This tax deduction helps offset the rental income you earn and can help reduce your taxable income. In accordance with IRS standards, most residential rental property is typically depreciated at a rate of 3.636% each year for 27.5 years.
Deduct Your Professional Property Management Fees
Many investors work with property managers to lease, manage, and maintain their properties.
Property management fees are tax-deductible as an operating expense if you hire a property management company. The fee you pay for leasing and management services are deductible from your taxable income.
Investing in rental properties will offer real estate investors tax benefits that can significantly reduce their tax bills and contribute to a more profitable portfolio. It’s crucial to understand that tax law changes frequently, making it essential to work with a tax professional (also a deductible expense).
Take advantage of these and other tax deductions when filing, and let us know if we can help. We’d be happy to make sure you’re not missing out on any other deductions as a real estate investor. Contact our team at PURE Property Management of Arizona.
