Top Three Tax Deductions for Rental Property Owners
Rental real estate provides some of the best tax deductions available to any investor. Your property manager should be knowledgeable in this area and willing to share their expertise with you. The following are usually the best three deductions.
The largest tax deduction for a landlord is usually mortgage interest. You can deduct interest on loans you have taken to buy or improve your rental property. Let's say you have a $200,000 loan on your rental property at 6% interest. The interest deduction is roughly $12,000 a year.
Depreciation on Real Estate
Depreciation represents the decline in the value of an asset. The IRS decides what the useful life of an asset is, thus setting its depreciation period. As an example, a computer has a useful life of 5 years, and residential rental property has a useful life of 27.5 years.
Rather than deducting the entire cost of your rental property in the year you buy it, the IRS says you have to deduct the cost over 27.5 years. Note that you can never depreciate the value of land.
The IRS defines repairs as something that keeps your property in good operating condition. Repairs include repainting, fixing leaks, replacing broken windows. You can deduct the cost of repairs each year. Do not confuse repairs with improvements. Improvements are changes that add to the value of the property or prolong its useful life, such as replacing a roof. You depreciate these costs.
- HOME / CONDO
- Single Home or Condo (Valued up to $300K)
- Single Home or Condo ($300K to $500K)
- Single Home or Condo ($500K to $1 Million)
- Single Home or Condo (Over $1 Million)
- Multi-Family (2-4 units)
- Multi-Family (5-19 units)
- Multi-Family (20-99 units)
- Multi-Family (100+ units)
- Homeowners Association (2-49 units)
- Homeowners Association (50-99 units)
- Homeowners Association (100+ units)
- Condominium Association (2-49 units)
- Condominium Association (50-99 units)
- Condominium Association (100+ units)
- Retail (Up to 9,999 sqft)
- Retail (10,000 - 100,000 sqft)
- Retail (100,000+ sqft)
- Office (Up to 9,999 sqft)
- Office (10,000 - 100,000 sqft)
- Office (100,000+ sqft)
- Warehouse/Distribution (Up to 100,000 sqft)
- Warehouse/Distribution (100,000+ sqft)
- Light Manufacturing (Up to 100,000 sqft)
- Light Manufacturing (100,000+ sqft)
- Parking Garage
- Vacation (1-2 units)
- Vacation (3+ units)
- Other Associations (Hotel, Resort etc.)
- Mobile Home Community