Benefits of Rental Property. Why Filing Your Taxes This Year Rules | realtor.com®
A gentleman called on my office several months ago. He had suddenly realized that his salary in the city was way more than his living expenses. Even though he was commuting up to 3 hours each way, he still had 1/3 of his net income to save or blow. He had decided to save it and after about 15 to 16 months, he was calling on us to buy some rental properties. I showed him properties and showed him how the new tax bill plus other indirect incomes is what makes rental properties up to 4 units is the most lucrative of all investments in real estate. Read the entire article from Realtor.com. It contains first hand information and professional advice you too can capitalize on.
While rental income is taxed, the tax act could offer landlords a nice tax shelter of sorts where up to 20% of that rental income is tax-free.
“What that means is for every $100 of taxable rental income, it's possible that you only pay tax on $80 worth of it,” says Amanda Han, a certified public accountant and assistant managing director at Keystone CPA, in Fullerton, CA
How exactly the federal tax changes apply to individual property owners can vary, so Castelli recommends seeking out a tax professional well-versed in real estate to help sort things out. But here’s a general overview of some of the new tax rules that will most likely affect rental real estate owners—including me.The rental house we purchased before the remodelErica SweeneyThe newly renovated rental house, with a new roof, fresh paint, and an opened-up front porchErica SweeneyLandlords can deduct a big 'bonus' the first yearBlame it on wear and tear, or just the passage of time, but in the eyes of the IRS, rental property depreciates over time. For landlords, that's a tax break—typically one that's spread out over several years.The good news? During the first year of owning a rental property, landlords can take a "bonus" depreciation deduction. In the past, that deduction maxed out at 50% of the property's value. But under the new tax act, that deduction doubled, to a max of 100%, which could amount to the entire sum you paid for the place. In other words, it's a huge chunk of change!This bonus deduction would be netted against revenue, which, in many cases, would make rental income show a loss, Castelli says.“So you won't be paying tax on your rental income," he says. “I'd say that's probably the biggest and most important change or most beneficial change to rental real estate investors.”Keep in mind, though, that your property has to qualify. One, it must be placed in service (meaning available for rent) after Sep. 27, 2017, and before Jan. 1, 2023. Two, all or part of the property must have a "class life" of less than 20 years. Since most properties typically have a class life of 27.5 years, it would need to be reclassified as a five-, seven-, and 15-year property in order to take advantage of the bonus depreciation (a CPA can help with this).Here's how it all plays out in dollars and cents: “Let's say you have a property worth $100,000, and you can get 20% of that reclassified as a five-, seven- and 15-year property," Castelli says. "That's a $20,000 deduction.”
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