Tax returns are a hot topic in the news right new, much as they are during any election year. If you own a rental property, you should also be concerned with getting the most out of your own tax return, while hearing so much about everyone else’s.
If you receive rental income from a rental property, there are a number of deductions available for your tax returns. Interest paid on your mortgage, depreciation, property taxes, and operating expenses are all available to be deducted.
The main deductions come with operational and maintenance costs, as nearly all expenses aligned with these are deductible. For example, money spent on things like repairing a damaged roof, replacing a broken door, HIRING a PROPERTY MANAGER or performing repairs after an accident are all maintenance costs that are deductible.
Even money spent on promoting your property can often times be deducted – including costs like building a website, and the payroll for contractors like accountants and groundskeepers can also be deducted for services provided.
One of the main keys is the depreciation deduction, which you can take for a percentage of your basis of rental properties each year. The longer you own an asset, the more likely it is that asset’s value will depreciate over time. The IRS lets rental property owners take a deduction based off that declining value of the rental property. However, that deduction only includes the tax assessment value of the building, not the land it is on.
The IRS is quite specific on how this is calculated, and the depreciation is spread out on the property on what is deemed the asset’s ‘useful life’. For residential real estate, that number is 27.5 years, which could come out to thousands of dollars in savings annually, depending on the property.
Of course, there are things that can impact these deductions. Any income generated by the rental property, including any and all rent, must also be reported on your income tax return. Also, any time spent at the property for personal use must be reported.
The amount of time used for personal use proportionately affects the percentage of the deductions you can claim. For example, if you spend half the year at your rental property from a personal aspect, you would lose half of the available reductions.
These deductions are often more than a one-time thing, and many can be taken advantage of annually. Identifying which tax deductions your property qualifies for will help you get the most out of your rental property for years to come.
For more questions regarding rental properties in Highlands Ranch, or anywhere else in the Denver metro area, contact Jim Shonts at PMI Elevation today.
