Considering buying a rental property? Here are nine must know tax deductions for your rental.
Items used for Property – Items such as rakes, hammer, and snow blower (all used for your rental property) can be tax deductible. Make sure to keep track of all receipts.
Credit Card Interest – Ideally, create a separate bank account for the rental. It will be much easier to see income/loss. The credit card interest is also a write off.
Home Office Deduction – You technically become a business owner when you own the rental apartment. If you use some space in your home for business, you can deduct a portion of your total home expenses as your home office. If you use 25% of your home as an office, where the total cost of your home is $1600 a month, you will have an office deduction of $400 or $4800 a year.
Depreciation Expense – The property, goes through wear and tear and loses value yearly. Most residential apartments are depreciated over 27.5 years. For more info on this, your tax professional is your best friend here.
Cost of Driving to your Property – Keep track of miles driven to your property. There are apps which can help you out with this.
Mortgage Interest Deduction- This is one of the largest tax deductions for property owners. Your mortgage is heavily interest based in the first years, then turns to principal paydown near the end of the mortgage. If you have not seen an amortization calculator, take a look to see how your mortgage is paid off over time.
Property Taxes- For the year, you will receive a write off for property taxes.
Water & Sewer – If your property is not separately metered, you will be paying water/sewer. This can be written off at 100%. If you plan on living in a three unit property, you can write off ⅔ of your total water cost. Once you rent out the entire building, you can write off all three units.
Common Area – Common area expenses typically include lighting. You could also consider getting occupancy sensors to lower your common area cost. This is a 100% tax deductible expense.
Keep in mind, these are only some of the benefits of buying a rental property. Hopefully you find these tips helpful!