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Tax Breaks and Deductions For Landlords

Diversifying your investments is a smart thing to do. And you probably have heard about buying rental properties that can produce recurring, valuable cash flow from a passive income. However, do you know that this can improve your financial status come tax time?  Check out below the many tax benefits of real estate investing and how you can maximize your savings on yearly returns: 

Use Real-Estate Tax Write-Offs

You can deduct expenses directly related to the operation, management, and maintenance of your home, such as:

  • Property taxes
  • Property insurance
  • Mortgage interest
  • Property management fees
  • Cost to maintain and repair the building

You can also write off what you pay to run your real estate property investing business. Qualified business expenses may include, but aren’t limited to:

  • Advertising
  • Office space
  • Business equipment (e.g., computer, stationery, business cards, etc.)
  • Legal and accounting fees
  • Travel

Depreciate Cost Over Time

Depreciation means you can decrease the value of your property and deduct that amount from your yearly income. This can significantly lower the income tax you have to pay. But real estate investors have the advantage when it comes to these write-offs. If you own a rental property, you are eligible to deduct the depreciation of your property, even if it is residential.  Usually, residential property only can be depreciated if you use it as a rental property. However, this isn’t the case if you own a rental property. According to the IRS, your apartment or townhouse can be used for personal reasons or business reasons. 

Use a Pass-Through Deduction

Pass-through entities are businesses that are “passed through” directly to the business owner (i.e., the owner reports business income or losses on their personal tax return). They can be organizations eligible for the small business deduction, sole proprietorships, partnerships, or S corporations. A pass-through deduction can put 20% of your qualified business income (QBI) on your personal taxes if you own rental property as a sole proprietor. QBI is taxed by real estate tax law when it is collected as rent by pass-through entities. Sole proprietorships, partnerships, and S corporations can qualify for this deduction if they own rental property. The main advantage of this deduction is that this reduces your pass-through tax rate regardless if you’re a high-net-worth individual or not.  For example, if you’re a sole proprietor, you should take advantage of this deduction because it will decrease your tax on income from your rental property. However, if you’re a high net-worth individual, this can save you more even if you’re in a higher income tax bracket. Overall, it’s in your best interest to maximize this deduction.

The Bottomline

Investing in real estate can be a beneficial way to build passive income, diversify your investment,s and even get a tax break. While rental properties may not be a good choice for everyone, keep in mind that you’re able to take advantage of tax write-offs as a real estate investor. Also, be sure you’re using a pass-through deduction to optimize your tax return on your rental property income. Evergreen Investments can help with property taxes. We connect homeowners to wealth-building opportunities for residential real estate assets. Get started now.

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