Renting real estate is a smart way to ensure income even in a down economy. There are also tax advantages to owning properties that are rented.
Rental property with less than 14 days personal use– One tax advantage of owning rental property is the ability to write off many of the costs associated with the property. These costs include advertising, cleaning, insurance, professional fees, management fees, mortgage interest, real estate taxes, repairs, and utilities. An additional benefit is that the purchase price of the property is depreciated over 27.5 years. Losses are considered passive and therefore limited to a maximum deduction of $25,000 per year. This amount is phased out for individuals with adjusted gross income ranging between $100,000 and $150,000.
Vacation homes with 14 or more personal use days – If you rent your vacation home there are limitations on the deductions that may be taken. Expenses may be taken up to the amount of income earned from the property. Any losses may be carried forward.
It is important to note that time spent performing maintenance on the property by the owner is not considered as a day of personal use. Renting to family members is viewed as personal use unless the owner is paid fair rental value and uses the dwelling as a principal residence.
Renting out your personal residence less than 14 days – A property that is used primarily as a residence and rented for 14 days or less has special rules that apply. In such a case, neither the rental income nor the expenses associated with the rental are reportable on your tax return.
Whether the purpose of your rental is purely for profit or for the dual purpose of providing income and a place to get-away, you may want to consider the tax savings associated with rental properties.
If you have any questions or would like more information, please contact: