One of the ways that you can cultivate an income stream is to rent out properties. However, many landlords wonder if there is tax help available for them. The good news is that there is. There are a number of deductions available for landlords overseeing rental properties.
Tax Help for Landlords
If you are a landlord, the first thing you can do to get more tax help is to do what is necessary to be considered a real estate professional. If you are just working on the rental properties, you can only deduct up to $25,000 against rental income (you can carry over some losses above the $25,000 to another year, though). If, however, you are fulfilling the requirements of a real estate professional for IRS purposes, your losses are fully deductible. If you want to be considered a real estate professional for the tax help, you will need to display the following characteristics:
- Spend more than one-half of your working time on the rental business (construction, management, development, acquisition, etc.).
- Spend more than 750 hours a year working on your real estate rental properties.
Even if you are not designated a real estate professional for the purposes of taxes, you can still get tax help through deductions. There are a number of deductions that landlords can take, and it would be wise to consult an accountant or check the IRS website for a list of deductions. Some of the more common tax breaks available include the following:
Repair Costs
You can get tax help when you make repairs, such as painting, repairing sinks and replacing light fixtures. These items are tax-deductible. Note that improvements, such as renovations and other actions that add value to your home, need to be depreciated over the life expectancy of the property.
Travel Costs
If you need to travel in order to maintain the property – or to collect rent – you can deduct the expenses associated with your travel. However, if you travel to make improvements, you will need to lump that cost in with the improvement cost and depreciate it.
Taxes
Property taxes paid are tax-deductible.
Homeowners Insurance
If you insure the property, you might be able to get tax help for this as well.
Mortgage Expenses
You can deduct mortgage interest paid on the rental properties you own. Additionally, if you have up-front costs (appraisals and commissions), there is tax help in the form of amortizing them over the life of the mortgage.
Other Losses
If you have losses related to flood, theft, earthquake or other disasters, you can usually get tax help in the form of a deduction.
So, even though you will probably have to pay capital gains tax on your rental properties when you sell them, with some careful planning, you can get some tax help in the form of deductions now.