The tax season may be an unpleasant term for most of the business persons, but not for one group that involves people related to rental business. In a perfect, where imposition of laws and regulations is not affected by any flaws, the tax season is actually a beneficial time for the rental business owners. With that said, it is worth mentioning the reasons why rental properties enjoy so many tax benefits.
- IRS considers income from rental properties as passive. According to law, passive incomes should be treated favorably.
- Investment in rental properties appreciates and depreciates at the same time. Appreciation means the increasing value of your property. On the other hand, depreciation is associated with the IRS assuming the continued process of wear and tear that happens with your property. While appreciation helps you to keep the profit due to increased value, depreciation helps you to get tax relaxation.
In order to make the rental property entirely tax free, here are a number of items that you can write off. The items that I am talking about are the ones that are meant to generate the profit that ultimately gets reduced due to taxes. Thus, if you are able to write off those items, you can save a lot of money.
Items that can be written off
- Management fees (e.g. property management)
- Homeowner’s association (HOA) or condo fees
- Property taxes
- Pest control
- Mortgage interest
- Other interest
- Bank fees
- Education/professional development
- Leasing fees
- Legal & professional fees
- Meals & entertainment
- Automobile/car expenses
- Minor improvements
- Major improvements/new assets
Ask a tax professional
For instance, if one of your rental properties is located out of city, the only way you can manage that property is visiting the place quite often. Since there will be traveling involved in the process, you can ask for the write off in order to get compensated for the traveling expenses by getting a subsidy on traveling.
Write-offs are great. In fact, this is one of the most important aspects that actually make your rental property investment a truly successful real estate investment.