Rental Property Tax Deductions & Benefits: A Comprehensive Guide

Owning your own home comes with its share of expenses, but you may also be able to deduct some of the costs associated with owning and renting out your home. Whether you’re looking to turn your home into a revenue source or simply want to write off as many expenses as possible, here’s what you need to know about rental property tax deductions and benefits. Not only can it help you minimize your taxes this year, it could also save you money when you decide to sell in the future!

Introduction to the tax deductions for real estate investors

In the United States, owning a rental property is an investment and it comes with different tax benefits. As you’ll soon find out, there are dozens of deductions and benefits that you can take advantage of when purchasing a rental property. What’s more, in this guide we’ve covered some often overlooked tax deductions for real estate investors! Let’s get started!

Home Office Deduction

Many landlords are wondering if they can take advantage of a home office deduction to offset some of the costs that come with running a rental property. The answer is yes, but only if the home office meets certain requirements.

The primary benefit of claiming an office space as your own is that you may be able to deduct some or all of your mortgage interest and any other expenses associated with it.

Depreciation as a Real Estate Investor

You’ll likely need to pay taxes on the income you earn, but you can also deduct expenses. In this post, we break down the tax deductions that are available to real estate investors.

Personal Use vs. Business Use of Home

The personal use of a home is only allowed as a deduction on Schedule A of Form 1040, subject to limits and eligibility criteria (including use as the taxpayer’s principal residence for two years out of the five year period immediately preceding the tax year). Generally, expenses attributable to personal use will not be deducted.

Qualifying For The First-Time Homebuyer Credit

The first-time homebuyer credit is a tax credit that some people who purchased their first home between January 1, 2008, and December 1, 2009, are eligible for. The maximum credit is $8,000. You can claim the credit only if you are single and your adjusted gross income is less than $95,000 (or $170,000 if married and filing jointly).

Rehab Costs

– If the cost of repairing a rental property exceeds 50% of its pre-repair value, the income on the rental property is not considered passive. – Before making any repairs or improvements to an investment property, the taxpayer should get advice from a professional, such as an accountant or tax attorney. They will be able to tell you whether your project is likely to be deductible and how much you can deduct.

Repairs and Improvements on an Investment Property

Here’s a list of the items which may be deducted from your income tax if you have made repairs and improvements on an investment property in the current year or if you plan to do so this year.

Renting Out Non-Residential Space (Carport, Shed, Etc.)

It is possible to rent out space in a non-residential property that isn’t currently classified as residential. You’ll need to contact your local authorities for details on how to proceed with renting this type of space.

Home Improvement Loans and Interest Expenses on Rental Property

You can deduct a home improvement loan if the money is used to improve your rental property.

First-Year Expensing Election on an Investment Property

First-year expensing allows businesses to expense a portion of the cost of certain qualifying property in the year it was purchased instead of over multiple years.

Casualty/Theft Losses – Personal Residence vs. Rental Property

When it comes to claiming casualty and theft losses, taxpayers have the option of taking the deduction on either a personal residence or rental property. It is important to know that these deductions are treated differently under tax law.

Other Miscellaneous Deduction Opportunities

Claiming these deductions as well will help lower your taxes and improve your credit score. Some additional deductions that may be available to you are contributions to qualified retirement accounts, mortgage interest, medical expenses, and charitable contributions.

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