Owning rental property is usually a sound financial investment. Besides all the money you’ll save by becoming your own landlord, there are still costs and expenses that people never even think of when they take on this responsibility. But if you have the right knowledge to make informed financial decisions, it won’t be difficult to yield a lucrative return on interest. When it comes to owning rental property, just follow these tips and you’ll be saving money in no time.
How to Save when Owning Rental Property
Often, a rental property investment will provide you with deductions which could end up lowering all of the income tax on your profits. One not so obvious way that you may be able to save on taxes is by hiring a property manager.
Of course, you’ll need to keep up payments for property management fees. But, when it comes time for you to file your taxes, there will be a huge deduction available for you to write off.
You will also have the benefit of enjoying reduced costs and rates on upkeep and maintenance. Property managers tend to get excellent rates from their vendors, as well as knowing exactly what and how much it will take to maintain the home.
Saving with Deductions
If you dedicate the majority of your time towards maintaining your rental, then all losses against you from the property are fully deductible against all income. The IRS grants deductions only to those who spend greater than half of their working time on the rental.
If you do not fall into that category, your losses can only be deducted up to $25,000 against the rental income. Although, you may carry losses that went past that threshold over to the next year.
Because it factors so heavily into the homeowners income, rental properties have a long-list of things that may be tax deductible. If you’re looking to slash expenses on your rental property, use some of these proven tips.
Repairs are only deductible in the year you pay for them, so deal with them as they arise. On the other hand, improvements only add value and can’t be written off. You can only recoup improvement costs by depreciating expenses over the home’s life expectancy.
In mortgage payments, the amount paid towards the principal is not deductible, but the amount paid on interest is. You will see how much interest you’ve accumulated over the year in the mortgage company’s annual Form 1098 they send you. If a portion of the payment goes into escrow for insurance and taxes, the report will also detail that for you.
If for any reason you need to travel for rent collecting or repair purposes, any expenses you accumulate may be deducted. However, this does not include traveling for improvements. That’s covered in the aforementioned depreciation.
Other miscellaneous deductions include taxes, landscaping, insurance, tax return preparation fee, and natural disaster or theft losses.