Tax Deductions For Your Sarasota Residential Rental Properties
Laws administered by the United States Internal Revenue Service recognize many tax benefits associated with the ownership of residential investment properties. While you should ALWAYS consult with your professional tax adviser before making decisions related to your personal tax position, this brief overview will give you a feel for the various allowances at the time of this writing.
Your Rental Is a Business
Unlike your personal residence, rental properties are considered businesses unto themselves. Just as all businesses record income and expenses and only pay taxes on “net taxable income,” such is the case for your rentals. Here’s a general list of some of the types of allowable deductions you can expect:
Legal and Professional Services
Professional fees related to your ongoing rental activity are generally deductible as normal operating expenses. Such fees might include property management fees, leasing fees, broker fees, attorney fees, and accounting fees.
So long as all repairs are considered ordinary, necessary, and at a reasonable cost, they can be deducted against rental income. The gist is, common repairs are deductible—don’t pad your expenses, and you should be fine.
Tax laws recognize that properties wear-out (depreciate) over time and allow you to deduct an expense for the depreciation of your property. A depreciation expense is an amount that can be deducted against income. As of this writing, residential rental properties are “depreciated” over 27.5 years.
EXAMPLE: You just paid $120,000 for a residential property that has a land-value of $20,000 and structure-value of $100,000 (land-value is not depreciable). To calculate annual depreciation expense—$100,000/27.5=$3,636. You can deduct $3,636/yr ($303/m) of depreciation expense against income, thus lowering your taxable income for the year.
There are other taxable consequences relative to depreciation, notably changes in the property’s “basis,” which is beyond the scope of this article, so be sure to consult with a tax professional knowledgeable in real estate matters.
The tax laws allow you to either “expense” or “depreciate” certain categories of personal property used in connection with your rental activity. This might include such things as stoves, refrigerators, lawnmowers, etc., or even computers used exclusively in conjunction with managing your rentals. As there are varying rules depending upon the personal property in question, seek the advice of a tax professional before taking depreciation deductions on personal property.
Premiums for things like fire, theft, flood, and liability insurance for your rental properties are generally allowable tax deductions.
Generally speaking, the following interest expenses may be allowable deductions against income:
- Interest payments on loans used to acquire your rental property.
- Interest payments on loans used to improve your rental property.
- Interest payments on credit card purchases made in furtherance of your rental activities.
Owning residential rental properties affords many tax advantages. When looking at monthly income and expense figures, many landlords fail to consider that, “all is not what meets the eye” — the net income numbers after all tax considerations may be significantly higher than it appears at first glance. It’s important to maximize your deductions to maximize your return on investment. Seek the advice of competent tax counsel to ensure that you are getting as much as you can out of your rentals while staying within the bounds of the law.
About The Author
John Michailidis, JD, is the broker/owner of Real Property Management of Sarasota & Manatee, a Sarasota, FL based residential property management company providing both Full-service and Lease-Only services to local area landlords throughout Sarasota and Manatee counties, Florida. If you own residential investment real estate anywhere in Manatee or Sarasota counties, do feel free to reach out to our team at 941-216-0005, or through our website HERE.
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