If you own a rental property and aren’t sure how that affects your taxes, then this article is for you. The Tax and Job Act of 2017 introduced many benefits for property owners.
Read more to learn about the tax deductions every investment property owner should know.
Tax deductions you should know
According to the eye of the IRS, rental properties depreciate over time. For landlords, that’s a tax break. This is typically a break that is spread out over several years.
Is this your first time owning a rental property? There’s a big “bonus” deduction in place for you.
This depreciation deduction is typically maxed out at 50% of the property’s value. But under the tax act, that deduction doubled!
This bonus deduction would be netted against revenue. Which, in most cases, would make rental income show a loss. So, you wouldn’t be paying taxes on your rental income.
However, how they apply to each owner can vary, and your property must qualify. Seek out a well-versed professional in real estate to help you out.
Tax-free rental revenue
Yes, rental income is taxed, however, the tax act offers landlords a shelter of up to 20% tax-free rental income.
So, how does this work? Section 199A of the IRS code provides taxpayers with a deduction for qualified business income. And the IRS considers a real estate enterprise as a business.
This is extremely helpful for many landlords.
Home improvement deductions
What’s a repair versus an improvement?
In the past, landlords could deduct repairs to a rental property immediately. But home improvements were depreciated over time.
Under section 179, the IRS increased the immediate deduction threshold for home improvements.
This threshold was increased to $2,500 per item. This means the money spent on improvements under $2,500 can be deducted immediately.
Tax act downfall
With benefits always come downfalls. One of these relates to losses on the property.
A loss occurs when a property’s expenses total more than rental income. Those losses cap at $250,000 for a single person and $500,000 for a married couple.
However, since these limits are pretty high, this doesn’t affect most rental-property owners.
Seek a property manager
When it comes to investment properties, things can get disorganized fast. Good record-keeping is essential for rental owners.
It’s ideal to keep sales closing disclosures, purchase closing disclosures, refinancing documents, and receipts for anything to do with the home for at least three years.
While it’s your responsibility to hold onto the sales and purchasing documents, a property manager could help keep a record of all other improvements, rental income, and much more.
A property manager will help you protect your assets. They can maximize your revenue by keeping your property leases and expenses low.
If you own a rental property or are looking to invest, consult with a professional to manage your property and help keep things organized for when tax season comes around.
