Rental Property Depreciation Explained

The primary reason why investors purchase rental properties is because of the tax breaks that are associated with owning the properties.  This may be true in some cases, but before you decide on purchasing investment properties to use as rentals, you should first understand how owning these types of properties will realistically affect your taxes.

When you file your taxes at the end of the year, you will be required to list all of the rent that you have been paid throughout the year, as well as, any expenses that are associated with the maintenance of the properties.  Once you have successfully input all of this information on your Schedule E tax form, you will then have an idea as to how your investment has affected your return.  One of the largest factors that you should take into consideration during this step is that of depreciation.

As a rental property owner, you will be allowed to deduct expenses that relate to the general upkeep and maintenance of that property.  These deductions can include HOA fees, general repairs, and landscaping.  However, if you are required to replace a larger item related to the property, such as a sidewalk or kitchen upgrades, it is important that you account for depreciation on these types of repairs.  This is because repairs of this nature are expected to last for more than one year, as a rental property owner, you should not forget to capitalize on these types of deductions.

The largest and most common depreciation deduction made by rental property owners is that of the actual purchase price that you paid for the property.  When you purchase a property that you are going to use as a rental, you have the right to deduct the depreciation value of the property after you have owned it for one year.  In order to determine the full amount that you can deduct when you file your taxes, you will need to divide the purchase price between the land and the structure.  The required information can easily be found on the tax assessor’s estimate of the cost of these three areas.

Property depreciation is something that many inexperienced property investors tend to overlook.  In order to ensure that you are being credited with every deduction possible, it is crucial that you follow the tips that we have listed above.  Owning rental property can be very strenuous and stressful; but it also does come with a particular set of rewards for owners.  If you have recently purchased your first rental property, it is important that you become familiar with all of the deductions that you are entitled to.

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