There are two types of landlords, those that love operating rental properties and dealing with tenants and those who enjoy the advantages of being a landlord but do not necessarily enjoy the problems that are associated with it. Regardless of which category you fall into, there are some considerations for benefits associated with being a landlord which make it well worth the process. These benefits often are seen as tax advantages, which is what is going to be discussed in this article.
One important benefit for being a landlord and owning rental properties is the fact that you are able to take deductions that would otherwise be unavailable. Understanding how to deduct mortgage interest properly, for example, can make a significant difference on how much you pay at the end of the year. In fact, there are times when you are able to use these deductions to your advantage to the point where your income will be at a negative number, which is something that can be carried over from one year to the next.
It is not only mortgage interest that is able to be deducted, other types of interest that are associated with your rental properties can also be deducted. For example, you may have had to make upgrades to the unit or perhaps have done some repairs and you charged those repairs on a credit card. Rather than having to eat the interest that is associated with those charges, you can deduct it on your annual taxes. Other deductions may also apply that can range from traveling expenses (both local and long-distance), depreciation, damages from theft and even the amount that you spend for professional services, such as for an attorney or a CPA.
Although there are tax advantages to being a landlord, there are also rules which may limit those advantages, particularly in the early years. For example, passive activity loss rules may apply in the early years of running a rental property. It may limit the amount of deductions that you are able to apply toward your income tax so that it is not able to be greater than any passive income that you have available. It is important for you to understand how to navigate the passive activity loss rules. You can contact our service for additional information on how to make the most out of your available deductions.
At some point or another, your rental properties should begin to see a positive return on your taxable income. This may be due to a reduction in your deductible expenses or an increase in the amount of rent due to rental cost increases. You may be able to take advantage of suspended passive losses that occurred in earlier years, which will help to offset the taxable income that you are now experiencing. Of course, there are also rules that apply in this instance which should be considered.
Finally, you need to consider the tax rules that are associated with selling a rental property. If you have owned the property for more than one year, the profit that is associated with the sale may be considered long-term capital gains. This can be to your benefit, because it will reduce the tax rate that you are paying. There may also be other taxes that are associated with the sale, such as a federal tax rate of 25% that may be tagged on part of the sale.
Do not allow these issues to cost you money when you are a rental property owner. Contact us for more information as to how to make the most out of your rental properties, regardless of whether you're keeping them or if you are selling them.