Rental property is a growing industry. People are starting to realize that this is a great way to earn and aside from that, there are favorable tax advantages that investors can benefit from. As you may already know, a rental property is an investment property rather than a residential estate. Thus, it’s tax computation is different. So how does the property owner benefit from it?
Since having the property rented is a business, you will treat the income generated from it as your gross income, any expenses you incurred, which is related to running the business shall be deducted. If you think about it, there are several expenses that you can deduct from the gross income, among those are the interest on mortgage, cleaning and maintenance, insurance, advertising for tenants and depreciation.
Property depreciation is one of the common tax advantages that you can benefit from.
This is taken from the gross income annually, thus representing significant savings for the family. However, this is not always a good thing because depreciation will be considered when you sell the property. You will not be generating much from the sale if you have huge amount of depreciation each year. However, if you want to earn more from rebates, then this may sound like a good idea.
Another thing that you can benefit from when you have a rental property is the expenses for home improvements. Remember, any amount that you use for the investment property or for the operation of the business is deductible. This means more tax rebates for you. However, you have to bear in mind that you cannot just apply for rebates after you have painted the walls or changed the carpets. There are certain changes you need to do for the property, which does not entitle you to a rebate.
You can discuss this with your accountant before you apply.
Another common tax advantage that property owners enjoy is the investments made in relation with running the business. An example would be the premiums paid for insurance. It is most likely that you will need insurance for the property for fortuitous events such as fire and other forms of accidents. This is not the only related investment you will make though. There are other fees such as regular payments for the homeowners association as well as some legal charges. These may result from services that real estate professionals have rendered.
Property owners can also claim deduction on taxes if they have proven that they incur the loss during operation. A loss is possible if the expenses incurred are more than the income generated. This usually happens during the first year of operation. Renovations are made; down payments for the property-related investments are also high. However, this can be difficult to prove especially if you are not managing the properties full time. You can hire a property manager though. He will help compute the daily expenses needed to make the claim.
There are also other credits for investors who are willing to purchase old properties. They are granted tax benefits for having the establishments fixed