Although possessing a rental property can earn some extra income, it can also create some tax deductions. According to tax experts, the following are some tax deductions you should keep in mind if you are thinking of purchasing rental properties.
Mortgage interest is tax-deductible for a rental property since it’s a business expense. Between January and February, a person should receive a Form 1098 from their mortgage lender indicating the interest they paid for the year. When a person files their tax returns, the deductions are taken on IRS Schedule E in most cases. This schedule is for rental property owners.
Most people perceive their homes as investments that get more value over time; however, a rental property should be considered more as an asset. Depreciation is expected in many business assets. Some even become worthless every year, such as they end up being useless. If you possess a rental property, you can perhaps deduct depreciation when filing your tax returns annually. However, the calculations are not very simple. There are several methods of calculating depreciation on rental properties; therefore, it is crucial to consult a qualified tax expert.
Property taxes are taxed on real estate and, sometimes, other properties owned by an individual. The tax amount is mainly based on the property’s location and its worth. A property tax can usually be deducted on a rental property. Since many rental owners overlook this tax, it is a good idea to remember to deduct it. Although there is a new limitation on property tax deduction, the limit doesn’t cater to business projects.
Generally, the cost of activities like fixing busted garbage disposals, patching holes in the walls, or swapping out light bulbs is typically tax-deductible in the year a person incurs the costs. However, sometimes the expenses are not deductible. Instead, the costs get capitalized and become part of the owner’s maintenance costs. At many times, many people misclassify repair costs while filing their returns. To avoid IRS red flags, property owners should avoid deducting capital improvements.
If you own a rental property, the property is subject to various tax deductibles, as seen above. If you are looking for a qualified tax expert, contact POM Capital and Funding Services for more information.