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Rental Income Property: Reaping the Tax Breaks

A cornerstone of Jason Hartman’s financial system for retirement investing is the fixed-rate mortgage rental property. Investment real estate offers the potential for creating a stable and secure income stream for retirement, and one reason rental income property is a smart investment strategy is that it provides more tax breaks and tax-related benefits than any other form of investment.

Current US tax laws relating to real estate allow single-property landlords to take advantage of some tax benefits previously available only to corporate entities. Yet many investors don’t take advantage of these deductions. Why? A number of allowances and deductibles aren’t well known, and some individuals may ignore them for fear of triggering an audit. Yet a surprising number of expenditures can be claimed as legitimate operating and maintenance expenses.

Interest is one of the most obvious deductions a landlord can take. Interest can take many forms, depending on the condition of the property and other factors, and includes expenditures such as mortgage interest payments, loans for improving the property, and credit card interest for services and goods related to the property.

Expenses related to repairing the rental property can be fully deductible, as long as the deduction is taken in the year in which it was incurred. This deduction can include any work related to necessary and reasonable repairs to keep the home habitable and safe.

Rental Property Losses
Some kinds of losses pertaining to the rental property can be claimed as deductibles too. For sudden natural events, such as fire or flood, tax deductions can cover some or all of the loss. Other losses such as theft and damage may be deductible as well. Many landlords can claim up to $25,000 in rental property losses annually, and in some cases, 100 percent of those losses can be deducted.

Premiums for any kind of insurance related to the investment property can be deductible as well. This includes the usual fire, theft and flood insurance, but also landlord liability and, if applicable, the cost of employees’ health and worker’s compensation packages as well as other types of specialized insurance related to a specific issue.

Operating Expenses
In addition to deductions for general repairs and losses, home investors can claim deductions for a variety of general expenses associated with maintaining the property, including home association dues, utilities and garbage disposal, and even maintaining a home office if appropriate.

Travel to and from the investment property, as well as any travel elsewhere that takes place because of the property, is also considered deductible. Even expenses such as meals and hotels can be claimed as legitimate deductions if documented properly.

Although many deductions are available to owners of rental investment property, experts warn that many of these can disappear if the property is rented to a family member or friend. But when legitimately taken with the advice of a tax professional, these and other deductions provide more reasons why fixed rate mortgage income property can be a sound investment. (Top image: Flickr | CarbonNYC)

The Heroic Investing Team


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