There is nothing as annoying as something as that takes money away from you. Worse is if you don’t know the legal ways to go about a problem. Your hard earned cash is the hardest to part ways with. It is common to hear an accountant saying if you’re paying taxes on rental income most likely you’re doing something wrong. More often than not they won’t tell you what you did wrong, so you keep going to them for to file your returns. With the right knowledge however you can also be able to file your returns.
This articles will help you do just that. We give an outlook of the top deductions to can make on rental income and reduce your tax burden considerably.
- Depreciation of Assets
Tax depreciation is charged in two ways. It is understood that the value of the rental property except land will continue to reduce over the years and the amount of taxes you paid in the first year cannot be the same as a decade later. In Australia, for example, the viable and productive period for a rental property is 27.5 years the total value is assumed to depreciate by same margins each year. The costs you can capitalize on and charge claiming depreciation on tax on the included value of the rental property (building) not the land it is on, cost of improvements or costs of upgrading and equipment. The depreciation is not charged in the same year they incurred but over the expected productive period of the property.
Interest on mortgages, loans, equity, all lines of credit can be used to offset your taxes. If you are using the financing to acquire property, then the expenses of obtaining that financing can be deducted from your taxes. It is a write-off, and you can claim against the income you get from the property. People fail to take advantage of all tax benefits of being a landlord, and this is one of the work with a tax accountant who understands real estate. There are several ways to leverage your taxes. You can mitigate your overall tax burden by claiming this deduction. Buy-down points on any property purchase and any mortgage refinance can be deducted against total taxable income
Once you buy a rental property, you have to do repairs on it. Any form of improvement or construction on a rental property are a tax write-off. They are deductible from your total taxable income on the year they were incurred. Any form of maintenance like the cost of replacing linings, repainting the gate, etc. can be charged as repairs against the total taxable liabilities.
- Insurance Premiums
Insurance is treated as a prepaid expense and is exempt from taxation. Your employee’s cost of health and workers’ compensation insurance can also be deductible. Nay other benefits afforded to you or your employees in the form of insurance can be treated as an expense and deducted.