Tax Deductions When Owning Two or More Rental Properties
Real Estate Benefits on Multiple Properties
There is no shortage of revenue possibilities when owning multiple rental properties. Rental income, home appreciation rates, and equity are just a few ways to bring cash flow into the positive. However, with this “flowing” money comes the American obligation to pay taxes! The silver lining to owning rental properties is that the Internal Revenue Service (IRS) allows you to take advantage of certain tax deductions for property expenses. The other plus is the IRS does not limit the number of properties when it comes to deductions!
Although tax rules can change from year to year and all financial advice should come from your tax attorney, we have a few suggestions regarding tracking and deducting your expenses.
Think about owning multiple properties
More rental property equals more write-offs and the potential to offset gains. Owning multiple rental properties is an excellent way to invest your capital and increase your ability to deduct items such as interest, insurance, and other expenses against the property’s income.
Maintenance and Improvements
Whether you have one property or multiple, the majority of your expenses are related to maintaining the rental property and making improvements over time. Make sure to track your expenses and deduct those expenses annually for every property!
Real Estate and Sales Tax
You are able to deduct the full amount of real estate taxes on as many properties as you own! Annual property taxes or taxes paid when closing on the home are examples of real estate tax deductions. Sales Tax falls into the same “unlimited” category. You can deduct sales tax for as many properties as you own (traditional, prefabricated, and mobile homes included).
While laws vary from state to state, it is worth exploring the idea of claiming the interest that you pay on a rental property’s mortgage. The mortgage interest can be taken off as a tax deduction, whether it is a private home or rental property.
House depreciation is defined as the general wear and tear on a property over time and the cost of buying and maintaining/ improving the property. There are three types of depreciation:
- Value of the structure
- Value of improvements
- Value of equipment
While these expenses cannot be deducted in a single year, you are able to spread them out over time. Be aware that the IRS has very specific rules regarding depreciation, and it is important to know how to process works before you use this strategy as a tax shelter.
At Oak City Properties, we have been taking care of rental properties for years! Our full-service property management company will help you find and buy new rental properties to grow and diversify your portfolio. We will also market the property, locate prospective tenants, and show the home to qualified applicants. Once a tenant is placed in your rental property, we will: collect rent payments, assess and collect late payment fees, provide 24/7 maintenance, help with accounting/tax services, and deal with any court appearances in the event of an eviction.
Want to keep reading about tax deductions and financial concerns when renting a home? Take a look at the following blogs: