![]() ![]() A key difference, however, is that the Mortgage Interest Deduction to which you may be familiar, that is currently limited to mortgages less than $750,000, is only applicable to your primary residence. ![]() Most homeowners use a mortgage to purchase their own home, and the same goes for rental properties. Common examples of interest that you can deduct include interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity. Moreover, whether you decide to make repairs or improvements that cannot be expensed immediately such as new appliances or a new in-ground pool where the cost must be depreciated over time, any loan interest to finance the cost of such repair or improvement is fully deductible. Loan interest can be the single biggest deductible expense attributed to your rental property. Given the current vacancy to your rental property, it may be a good time to consider some of these repairs. Other common repairs that are immediately deductible include painting, fixing a leaky roof, replacing lighting fixtures, refinishing a wood floor and cleaning carpets. Because the improvement added $10,000 value to your home, that isn’t a bad thing, but you should be aware of the tax differences between the two. In contrast, if you replace the driveway for $10,000, you would have to depreciate the tax deduction over a period of 15 years. Assuming your tax rate is 37 percent, you will save $740 in taxes ($2,000 *.37). As a repair, you can deduct the entire expense in the current year. That is, routine repairs and maintenance are not considered improvements and are deducted as expenses against any rental income received.įor example, you repair cracks and seal the driveway on your property (versus a full replacement that would be classified as an improvement) for $2,000. While determining the difference between a repair and an improvement sometimes can feel difficult, luckily there is a fairly easy litmus test: a repair is made to restore an item to its previous condition. ![]() ![]() The distinction is important because you can deduct the cost of a repair in a single year, while you have to depreciate (i.e., take deductions over a scheduled term of years) improvements over as many as 27.5 years depending upon the expected life of the property improved as determined by the IRS. The first step in maximizing the tax benefits of your rental property is to decide whether any planned financial outlay applied to the property is a repair or improvement for tax purposes. Given the circumstances, making tax deductible repairs or improvements to your home, even if you don’t have the current rental income to support it, may benefit you for years to come. But this year, due to the coronavirus, owners and tenants alike remain in their homes watching the calendar days inch closer to June and anxiously anticipate a cancellation.Īs a rental property owner facing an unexpected vacancy, it is important that you understand the basics of rental expenses, any related loan interest deductions and even the potential advantage of tax losses. Typically at this time of year, rental property owners are cruising down the busy highway to open up their beach or lakeside homes and collect final payments from the families who rent them for the summer. ![]()
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