Paul Van Baalen • Feb 15, 2024

Tax Advantages of Owning a Rental Property

Are you aware of all the tax benefits that come with owning a rental property?

We are property management experts in Southwest Washington. We’re not tax experts, and we always recommend that you seek the advice of a tax professional when thinking about filing your taxes or making deductions.

From our perspective as property managers, however, we can tell you about taxable income and the expenses and depreciation that you can deduct as a real estate investor who rents out properties.

Understanding Rental Property Income

First, let’s take a look at your income. For the sake of an example, let’s say your rental property earns $2,000 per month. That’s $24,000 a year in income. You’ll need to claim this income on your annual tax return.

Understanding Expenses and Deductions

The expenses associated with your Southwest Washington rental property are all tax deductible. Here’s what is included in those expenses:

Mortgage interest. If you’re carrying a loan on the property, you can deduct the interest.
Property taxes.
Landlord and liability insurance premiums.
Property management fees.
Maintenance and repairs.

All of these expenses are tax deductible.

Depreciation as a Tax Benefit

Always make sure you talk to your tax professional about depreciation and the type of deduction you might be able to take here. You can depreciate your property within the guidelines provided by the Internal Revenue Service (IRS). According to the IRS, you can depreciate a rental property over a period of 27.5 years.

So, let’s say you buy a single-family home for $200,000. The land that home is on might be worth $20,000, and the property itself is worth $180,000. You cannot depreciate the land, but you can take that $180,000 and divide it by those 27.5 years.

That’s how much of an expense you can write off per year. So, on top of all the other expenses that turn out to be tax benefits, the depreciation is also an expense. Write that off as well. Your tax professional can describe this benefit in more detail and make sure you’re taking the correct amount of depreciation for tax purposes.

We hope this has helped you understand how owning rental property provides tax benefits. You have your income from rent, which needs to be declared. But, you can reduce that tax liability when you deduct for maintenance, repairs, and other costs. Keep in mind that some of your repairs will have to be depreciated over time. You cannot depreciate them in the same year all at once.

Talk to your tax expert. Remember that owning a rental property is good for your tax situation. It could affect your income, and that’s going to impact your tax rate. But, with all the tax benefits available to you, owning rental property works out to be an advantage and not much of a liability.

For more information on rental property taxes and other matters pertaining to property management in Southwest Washington, please contact us at SunWorld Group. We’d be happy to tell you more.

< Older Post Newer Post >