The investment world has caught on to the high rents levied around the U.S. for single family homes, as compared to apartments and/or condos/townhomes. We are hearing of investment banks and high-net-worth family offices buying entire subdivisions of single family homes. Of course, investment in single family homes historically has been the focus of smaller investors and individuals. But, the word is out....
Note: We have long advised clients to do all they can (after they buy their main home) to acquire one investment property every two to five years (or at least one per child) as early on as possible so that by the time their children are college aged, there is equity sufficient to pay for college expenses and/or retirement, if needed. Often, this approach provides a substantial cushion into retirement as our clients find they don’t need to sell the investment property to finance tuition or other life expenses and instead enjoy the revenue streams through retirement.
The tax benefits to landlords are (mostly) much better than those for homeowners -- renters get virtually no tax breaks. Here are some common tax breaks for investors / landlords:
- You can deduct mortgage interest you pay on a loan used to buy or improve your rental property.
- Property taxes paid on a rental property are generally tax deductible. Limits apply.
- The cost of rental property (excluding the land) is considered to decline over time, and this decline in value can be deducted each year as a “depreciation” expense.
- Expenses related to maintaining and repairing a rental property are generally tax deductible.
- Insurance premiums paid for a rental property are generally tax deductible.
- Professional fees paid to a property manager, bookkeeper, or other professionals for services related to the rental property are generally tax deductible.
- Travel expenses: if you need to travel to your rental property for business purposes (e.g., to make repairs, meet with tenants), you may be able to deduct some of your travel expenses.
- Operating expenses: purchases made for supplies or subscriptions for managing your rental properties are tax deductible. This can include office supplies, legal forms, management books, and subscription-based services like phone bills or web-based property management software.
- Cosmetic upgrades - painting shutters, power washing, or doing some landscaping - these types of expenses may also be tax deductible.
- Money spent on advertising your property for rent is likely deductible, whether online, print, or radio.
And let's not forget that 1031 exchanges allow you to defer capital gains taxes. For sure, there are LOTS of incentives to own rental properties.
If you would like to discuss investment properties here in Marin or Sonoma Counties, please give us a call. The Imagine Marin Group is here to help. If you are interested in other parts of the country, we can also put you in touch with someone great.
Disclaimer: none of this constitutes legal or tax advice. If you have specific questions regarding anything legal or financial, please be sure to consult with a qualified California real estate attorney and / or certified accountant.
