Owning investment real estate is a tried and true method to accumulate wealth over time while also putting extra money in your pocket each month with a positive cash flow. When the rental income exceeds the monthly payment, taxes, insurance and maintenance that’s one of the requirements when deciding which rental property to buy. But beyond that, there are tax advantages owning rental property you may not be aware of. Note that you need to consult your own tax professional to discuss your personal situation.
Interest. Interest on a mortgage loan used to finance a rental property is tax deductible and is usually the single largest tax deduction.
Depreciation. A physical structure will depreciate over time and tax rules allow landlords to depreciate the cost of the property over time by deducting a portion each year over several years.
Repairs. If your sink disposal goes bad in your primary residence you have to buy another. It’s an out of pocket expense. For rental properties, you can deduct that expense from your taxable income.
Travel. If you have to drive to the hardware store to buy a new sink disposal you can deduct the mileage to the hardware store as well as a trip to and from the unit to make the repair. If you own rental property long distance your travel expenses and lodging are tax deductible items.
Home office. If you have an area in your home cordoned off as your home office to manage your real estate affairs, you can deduct home office expenses.
Insurance. While you can’t deduct insurance on your primary home you can deduct it on your rental property. If you have employees, you can deduct any insurance premiums you pay to cover them as well as worker’s comp.
Legal and professional. You can deduct the expense for professional services such as legal fees, accountants, property managers and other professional services needed for your rental property.
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