These tips on rental property deductions that we're going to share with you will provide you with an immense tax shelter. You'll see that there are several tax deductions that you can take by owning even one rental property.
I know this because I've owned rental properties for several years and have taken advantage of these tax savings.
Treating Real Estate As An Investment Instead Of A Small Business
You'll achieve the largest tax savings as a real estate investor; not a small business. Real estate used as a small business includes realtors, builders, contractors and people that buy property to sell it quickly (flip homes). They have a real estate "business" and are not considered investors.
On the other hand, a real estate investor buys a property as a long-term investment, which is greater than 1 year’s time, to rent out to tenants.
Rental Property Deductions
You will take your rental property tax deductions on IRS Schedule E. This schedule is where you'll indicate your investment property income and expenses. As you can see, there are several expenses that can be taken as deductions, including "other" expenses (line item 18).
Here is a comprehensive checklist of rental property tax deductions that you can take advantage of as an investor:
*Advertising
*Auto
You can deduct any mileage you drove to maintain and manage your property. For instance, you drive from your home based office (which you can set up as a landlord) to your rental property. You would be able to claim this mileage as an expense on your Schedule E.
You may notice the key words being "maintain and manage" your property. This means if you need to drive out to the property to check on how a repair is coming along, you can write off this mileage.
If you drive to your rental home to speak with your tenant about anything regarding the home or to collect rent, this is deductible mileage.
Managing your property can also include doing a drive by to look at the property to ensure it’s in good standing. Just make sure you keep good mileage records including the purpose of the trip.
*Depreciation
Your residential rental property gets depreciated over 27.5 years. For example, if you pay $100,000 for the home, you can take a depreciation tax write-off of $3636 ($100,000/27.5 yrs) per year, which is taken as a "paper loss" against any gross income you make. This is a substantial tax deduction.
* Cleaning & Maintenance
* Homeowners insurance
* Mortgage Interest
* Property taxes
* Utilities (if you pay them instead of the tenant)
* Phone costs, PO Box, internet costs related to your rental property
* Repairs & Supplies
* Educational Expenses
* Real estate club dues
* Tenant credit report fees
* Professional fees
* Management Fees
*Homeowners association fees
There is no dispute that rental properties are one of the few best remaining tax shelters you can take advantage of to achieve big time tax savings.
Tim is the editor of frugal-save-wave.com where you’ll get the answers you need to live better on less through wise family money management. These money saving strategies include tips on frugal living, budgeting money, eliminating debt and more.
Tim doesn’t just write about these strategies, he lives them. Tim also has an MBA in finance as well as over 20 years of professional experience in personal finance.