When you purchase a rental property as a real estate investment you will likely pay income tax on your earnings. However, there might be ways to lower your tax burden through deductions on a rental investment.
The IRS has guidelines for what is considered a rental property.
Monthly rent is not the only income counted as income. This is not an all-inclusive list, but rental income for income tax purposes can include:
While rental income is considered income for tax purposes, there are deductions you might be eligible for.
The management and maintenance of a rental property might be deductible. These include:
Depreciation is another deduction from income earned from rental properties. For real estate, the depreciation is calculated over a 27.5-year period. Also, you can only claim depreciation for the building, not the land.
To claim depreciation as described above, the IRS has certain guidelines. For example, you can only deduct depreciation for the part of a property used as a rental, and you must be the owner of the property.
In order to determine taxable income from a rental property and any deductions, it is best to meet with a tax advisor to work with you line-by-line on your expenses and incoming money from the rental.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.