As a rental property owner, you incur more expenses than the everyday homeowner. As the landlord, you’ll bear the expenses and services required to maintain a rental property.
When you’re renting out a property in Los Angeles, you can see big savings during tax season, making a rental home a lucrative and greatly beneficial investment for a Los Angeles real estate investor. The Internal Revenue Service (IRS) allows for several tax breaks when you own a rental property, making even repairs and renovations more affordable and helping to create a larger profit at year-end.
Before we begin, we always advise to consult with a tax and accounting professional for the most relevant and appropriate in your area.
This is what you need to know about rental property tax deductions in Los Angeles.
What Are Rental Property Tax Deductions?
If you own a rental property, you have the ability to deduct reasonable expenses, so your annual taxes don’t spiral out of control each year. This includes things like repairs and other costs that are associated with the management and maintenance of your rental property.
Rental property tax deductions can include any number of fees, taxes, and expenses that a homeowner would typically pay but are exempt for the rental property owner.
Before you make any purchase, we at Poplar Homes suggest that you first consult the advice of a licensed legal or tax professional who can advise you on the best course of action for your investment portfolio. They may have additional advice associated with the tax benefits of rental property.
How Tax Deductions Make for Profitable Rentals
Depending on where you live, you can leverage existing laws to create bigger returns from your rental property. There are several ways to generate revenue and turn a profit from your rental property.
Your mortgage works for you when you have a rental property. The IRS lets you save with deductions for interest paid on your rental property mortgage, often giving you the biggest tax break for your rental property. You can deduct much of the interest that you pay on your loan, regardless of whether your loan was used to buy the property or make improvements.
We generally think of the primary loan used to acquire a property, but you can save money in other ways. Home improvements for your rental can be tax-deductible expenses that can not only improve the value of your home but can also give you money back at tax time and add to the tax benefits of rental property.
The interest on your home equity line of credit (HELOC) is one place that you can save on interest. Credit card interest is also a popular deduction for rental property owners who use these accounts to make qualifying purchases related to the property.
There are some expenses that are reasonably expected for the average property owner, so the IRS gives you a break.
Purchases you make toward the maintenance and improvement of your home can be tax-deductible. Your vehicle and travel expenses can also save you money on taxes when used toward the management of your rental.
Your home business office can be a write-off, too, with tax discounts on some things like utilities, insurance, and repairs. You could potentially save on the mortgage you pay for your home if you can show an eligible, dedicated space used to manage your rental operation.
|Examples of Improvements – IRS.gov|
Storm windows, doors
Soft water system
|Lawn & Grounds||Heating & Air Conditioning||Interior Improvements|
Central air conditioning
Pipes, duct work
Often when you own a rental property, you have a little help running it. There are lawyers and tax professionals, property managers, realtors, and even employees of your own.
The IRS makes it easier for the average rental property owner to receive help. If you choose to hire a property manager, those services are tax-deductible, so you can benefit from more affordable professional support.
While there is a difference between employees and independent contractors, you could potentially save on the wages and benefits paid to your internal employees, such as a property manager, handyman or cleaning service on your payroll. For these services, be sure to track all expenses through receipts and invoices for your tax return.
Types of Rental Property Tax Deductions
There are many kinds of property tax deductions for rental property owners.
These are some of the most common types.
|Type of Deduction||Examples|
|Property Expenses|| |
The types of deductions will ultimately depend on what kind of property you own and where your property is located in Los Angeles. Your professional tax consultant can provide a more detailed portrait of your tax deductions and overall savings.
Property taxes vary from the Federal, State, and County level. Poplar Homes recommend consulting with a tax attorney or CPA for the best advice when filing your taxes.
Key Takeaways for Los Angeles Landlords
Savvy Los Angeles rental owners know their rental property is a business, therefore they treat it as such. They account for the investment property tax deductions through their monthly spending and turn a profit each year from the many tax deductions made available each year by the IRS.
There are many different kinds of deductions that you can leverage to reduce how much you pay each year on everyday, regular expenses like interest, tax, and even credit card fees. While these may change from year to year, you should always be prepared to pull out your accounting books when it comes time to file your taxes. You should always consult with a tax or legal professional who can provide detailed counsel for your specific property.
When you own a rental property in Los Angeles, you certainly stand to earn significant savings at tax time when you file using the many deductions available to you.