Today, Kevin Ortner expands on the numerous benefits to purchasing properties for rentals, including the tax benefits to take advantage of.
As Kevin Ortner explains, knowing what you can get tax breaks on will help save you money on each property.
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Kevin: Hello and thanks for joining us. I’m Kevin Ortner with Renters Warehouse and I’ll be your host today on REI Classroom. Today, we’re going to talk about rent estate, rental real estate, and the cashing in on the tax benefits and the benefits associated with owning rental real estate.
Mike: This REI Classroom real estate lesson is sponsored by VirtualStaffNow.com.
Kevin: So we all know why we invest in real estate from value increases to appreciation, long-term investment, maybe you want to diversify your portfolio, hedge against inflation, use other people’s money or leverage the bank’s money to grow your investment, but one of the commonly overlooked aspects of owning investor real estate are the tax benefits are associated with it. And so not only are you going to have a property, let’s start with one these benefits, but you not only have a property that obviously increasing its value over time and becoming worth more and more and more as you’re paying down your mortgage, and all those kinds of things, but you actually are going to be able to save money today.
So owning investment real estate, or any kind of real estate, whether it’s a primary home or investment, you’re going to be able to get tax deductions. Now, this is where great CPA comes into play. So I’m not a CPA, I’m certainly not giving you tax advice, but these are the things you need to keep in mind and make sure you’re working with a great certified tax planner or a CPA that’s going to be able to help you navigate through a complicated tax code and allow you to take advantage of these things.
So there are things like mortgage interest. You can actually deduct your interest on your mortgage. You can deduct your repairs and maintenance expenses for the property. You can deduct leasing and property management fees. My firm, Renters Warehouse, every fee we charge is tax deductible. That’s an advantage to our owners. Taxes and insurance on your property, you can also deduct the depreciation or depreciate the building.
So let’s dive into those a little bit further. Mortgage interest is pretty obvious. It’s the interest you pay on your mortgage and you’re able to deduct that. Your repairs and maintenance really need to break up into two different categories, but it’s something you really want to make sure you track closely and pay attention to what you’re doing. A lot of first-time investors forget that every dollar they put into the property, they can take advantage of in another way through tax deductions.
So keep track of those repairs. If they’re larger repairs or maintenance, you’re replacing furnaces or air-conditioning units or roofs, that’s going to be a capital expenditure that you’re going to do a different deduction over time with, but also very important to keep track of. And this is where good record keeping or a great property management firm for your properties really comes in play.
Leasing and property management fees or other professional fees associated with your properties from accounting and legal, all those kinds of things are also tax deductible.
Taxes and insurance on your property and then building depreciation. Well, what’s that? You can depreciate your assets over time. The tricky part is you can’t depreciate a land that your building’s on. So you need to separate those out and take care of those in a different way.
And again, this is where partnering up with a tax professional that not only is perhaps the great tax professional, but is an expert in real estate and how real estate taxes can be done, and how you can save this money, comes into play. So make sure that whoever is working with you and your taxes is someone who’s really, really well versed in real estate.
And then, finally, what’s the point of all these deductions anyway? Well, we all have a gross taxable income and my theory, and a lot of our theory is to make sure that we can legally lower that gross taxable income as much as possible. And so if you’re someone who might make $100,000 a year to report on your tax return, if you’ve some investment properties, some rental estates, some real estate that you use as a rental tool, you can use these deductions to change that taxable income from maybe $100,000 down to $90,000 or $85,000.
Ultimately, it’s one more way that putting real estate to work for you in the short run comes into play. Not only can it make your cash flow and those kinds of things that come from it and create your long-term wealth or legacy for your family, but immediately every year you can keep more of your hard-earned money in your pocket.
So again, those are some of the tax benefits of cashing in on owning rental estate. Thanks for joining us for another episode of REI Classroom. I’m looking forward to seeing you next time.
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