Rental properties can be a great investment but being a first -time landlord can be quite challenging. Here are some tips that are not known to many landlords.
- You can depreciate your residential property over 27.5 years if you rent it out. The depreciation can be a great deduction on your Schedule E.The IRS allows landlords to take a tax deduction based on the perceived decrease in the value of the rental property. You can only depreciate the building while the land is not depreciable.
- Mortgage interest and real estate tax are deductible. However, any expenses you pay to get a mortgage are not deductible. Instead, these expenses will increase your basis in the property.If you only rent out partial of the property, you need to allocate the percentage. The portion of personal use of mortgage interest and real estate tax can be deducted on the Schedule A. The business portion of mortgage interest and real estate tax can be deducted on the Schedule E.
- If you are a real estate agent, you can use the loss from rental property to offset your ordinary income.The rental income is no longer passive income if you are real estate agent because you actively participate in the activity. The loss can offset your other ordinary income. For example, salary and wage income.
- You can deduct the cost of repairs in full if the amount is not large. You will need to capitalize the cost and depreciate it over the useful life if the amount is significant.
- Setting up an LLC for the rental property can limit your personal liability and keep your business & personal expenses separate.
- Income from related -party rentals may be eligible for the 20% Qualified Business Income deductions.
For further information, please feel free to reach out to us at firstname.lastname@example.org. We specialized in rental properties. Our experience with rentals is personal as well as professional, as both our clients as well as ourselves own rental income properties.
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