When you first think of investing in real estate, taxes are not the first thing that crosses your mind. If anything, you only think about them when calculating the profit you will make at the end of the month. Every year, thousands of landlords pay more taxes than they must because they are not aware of the tax breaks they can claim. These benefits are the difference between losing money and making a profit. These tax tips on rental income will help you know the benefits you should claim.
This is one of the major claims you can make. For instance, you can deduct your mortgage interest paid on loans you used to acquire the house. That’s why it’s so important to use real estate leverage and take out a buy to let mortgage with companies like habito.com. Besides being paired up with a buy to let mortgage expert to answer all your questions, you will learn what lenders look for, how much you qualify for, interests you will pay, and how you can remortgage your buy to let loan when you are ready to buy another property. All this information will come in handy when calculating the tax deductions.
Sometimes, you need to do repairs to make your rental more habitable to the tenant. The law allows you to deduct any repairs you made throughout the year, if they were necessary, within a reasonable amount, and ordinary. The repairs can include anything from fixing floors, gutters, leaks, replacing broken windows, and even plastering. Home improvement projects are, however, not deductible. These include expenses that make an asset long-term, restore it to operational conditions, or adapts it to new use.
Do you find yourself driving around a lot to cater for repairs and rental associated errands? If you do, you should be deducting the expenses from your tax. For instance, any driving you do to buy supplies for a repair or to deal with a complaining tenant can be deducted as travel. If you are improving your rental, you will be unable to deduct the cost of travel. Instead, you can add these to depreciation deduction. You can either deduct actual expenses such as gasoline and repairs or use a standard mileage rate provided by the government.
4. Home Office
If you use part of your home for business, you qualify for a deduction called home office deduction. You must, however, meet the required tax law to make this deduction. For instance, you must use the space often and it must be your primary place of business.
Some of the deductions you can make include mortgage interest, insurance, rent, real estate taxes, repairs, and improvements. It’s available for any space you use for business purposes, such as an office, store, and even garage. Your home is classified as your house, condo, apartment, and mobile home such as boats.
Knowing tax laws associated with rental real estate is crucial. Unless you are a tax professional, you might need an accountant to advise you on how to handle your deductions.
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