If you ever thought that the rental income was the only way of getting richer when you rent a property, think again, you have not paid attention to a host of other incentives and tax advantages that would accrue to you for being a landlord. There are a number of tax exemptions available on the monthly rent which would be to your advantage.
The biggest and perhaps the most well known is that the entire amount of loan payments are tax deductible. This essentially means that the interest and principal payments made towards loan repayment are deducted form your income to compute tax liability. However, not many know that even credit card interest payments paid while purchasing goods or services for the rental property are deductible. The most effective strategy that one can follow is to match the inflow of rental income with the outflow on the loan payments to have nil tax liability from rental income.
Rent income is considered equivalent to business income and hence all the expenses you incur to generate this income would qualify to earn deductions.
The following are the typical expenses available for deductions against your rental income
All the expenses incurred towards the maintenance of one’s rented property. The maintenance expenses that one usually incurs are for housekeeping, insurance and landscaping.
One can claim depreciation starting from year 2 of the rented property. This is one the easiest way to recover the cost of the rented property.
One can deduct all the repair and maintenance expenses incurred during the course of the year from the rental income for that year.
Premiums paid towards insuring the rented property can be claimed as deductions.
The fee paid to all the professionals such as attorneys, accountants, etc related to the rented property is available as deductible expenses.
All the travel that one needed to do in respect of maintenance, repairs and even to attend to the complaints of the tenants are available for tax deductions.
To ensure that all these tax advantages are passed to you as the landlord what you have to do is to neatly record and update all transactions associated to the rented property.
This keeps the job of tax man easy and makes your life less stressful when the taxman knocks on your door for clarifications.
The idea with which the government provides these tax exemptions is to encourage people like you and me is to promote the housing sector. The growth of the housing sector acts as a catalysts to the growth of all critical sectors such as steel, cement etc. The growth of the real estate sector is translated to each and every other section of the economy right from the workers employed in construction to the loan executive arranging for a loan on this property. It is absolutely essential to be cognizant of tax advantages associated to a rental property. “Make your money work harder than you do”, your rental income works for you by providing tax advantages.
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