A majority of landlords believe that rental properties are capable of generating nothing else, but rent that is fully taxable. However, in reality a number of tax benefits are associated with such properties. With exhaustive knowledge of these benefits, you can also make your rental properties profitable. Here are some prominent tax benefits on properties that have been rented out.
• Home mortgage interest- If you are still paying back the home loan that you had taken to buy your rental property, the minimum monthly payment of the loan is fully deductible. Likewise, if you have taken a home improvement loan for the repair and maintenance of the property, the monthly payment of that loan can also be deduced for the total tax amount. All the purchases (goods and services) that you make through your credit card for your rental home are also deductible.
• Depreciation of home value- After a span of 27 1/2 years in the case of residential properties and 39 years in the case of commercial properties, the value of the building begins to depreciate. The value of the land is not included while calculating the depreciation. For instance, if you purchased your rental property for $200,000, then the annual depreciation would be $7,272.
• Home insurance- Every home should be insured against theft, fire and natural calamities like earthquake, floods, hurricanes, cyclones and the like. If you are paying a hefty premium on your rental home insurance policy, then you become eligible for tax deduction. Similarly, if have brought health insurance policies for the employees who help you to maintain your rental properties, then the premiums of these policies are also deductible.
• Losses and calamities- If due to fire, theft or natural calamity a portion of your rental property is destroyed, the tax deduction is applicable on the total cost of the damaged property.
• Home improvements- Any kind of home improvement, be it regular repair work as replacing the broken window frame, or major changes like building a new room and bathroom, allows you to claim tax deduction.
• Local and long-distance travel- If your rental property is quite far away from your residence, and from time to time you visit the place for repairs, maintenance and improvements, then the total amount of money you spend on such travels can be fully deducted from the taxable amount. These travels include both long-distance as well as local journeys. In order to claim this tax benefit, you would have to provide authentic documentary evidence.
• Home office- If you manage all your rental properties from your home office, then the entire space used makes you eligible for tax benefit. Instead of home office, if you are using any other space, then too you can claim tax deduction.
• Salaries- If you have employed a few people to manage your rental business, then the salary that you pay to them is fully deductible. Apart from the salaries, the fees of attorneys and accountants also provide similar tax benefits.
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