Tax Tips for Rental Property Owners

It’s tax season again. If you own a rental property, your tax strategy is more complex than for the home you live in. Here are some important tax tips for rental property owners.

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Rental property tax considerations each year

Here are some points to keep in mind when you file your annual return:

Your rental property shows up on Schedule E of your tax returns, which logs rental income and expenses. The expenses include mortgage interest, property tax, maintenance, repairs, utilities, property management fees, depreciation, and all other costs associated with owning the property.
If you pay points when you close your rental property purchase loan, you cannot fully deduct them the year they were paid like on a primary residence purchase. Instead, you must deduct points over the life of your loan.
If your rental income exceeds expenses each year, the income is taxable just like any other income.
If expenses exceed rental income on Schedule E — which is common because of the depreciation expense line item — you can deduct rental losses if your non-property income is up to $150,000 per year. If your non-property income is up to $100,000, you may be able to deduct rental property losses up to $25,000 annually. If you earn between $100,000 and $150,000, this potential deduction benefit is cut in half. And if you earn above $150,000, you cannot deduct rental property losses.
If you earn too much to deduct rental property losses, the losses can accrue as an offset to capital gains taxes when you sell.
Ask your tax adviser whether deductions or accrual of rental losses fits your tax profile.