4 Things You Should Know About Rental Property Tax Deductions

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(And Other Real Estate Investment Tips to Improve Your ROI)

Investing in rental properties and real estate can be incredibly lucrative, especially if you know how to leverage the many nuances and tax benefits of such investments. Today, we’ll highlight a few of the perks you need to know about to maximize your ROI. There are tax deductions for certain fees, along with other considerations that will contribute to your bottom line if you know just where to look.

1. Balancing Appreciation & Depreciation

It’s important for your revenue goals to understand the nature of appreciation and depreciation. In general, depreciation refers to the loss in value of your rental property based on age, deterioration, and typical wear and tear. But on the flip-side, real estate appreciation depicts the increase in value over time, based on the market fluctuations, location, and real estate demand. Finding the balance between these nuances can help you maximize your investment returns. While you can’t control the market or the age of your property, you can make improvements to its condition to help improve this balance.

2. Real Estate Investing and Cash Flow

Rental property owners are also usually keen on maximizing their cash flow. And there are ways to increase yours, including basic steps like rent increases. But rent hikes aren’t always doable, especially during economic hardships caused by the pandemic. You can consider refinancing your loan to reduce your mortgage payments, however.

There are also transactional steps, including the 1031 Exchange, which offers a tax-deferred exchange of properties where you sell one piece of real estate and use the proceeds to purchase another. You’ll be on the hook for gains taxes during the exchange, but your sales are not taxable, putting a little extra cash into play. And oftentimes, cash flow can improve by avoiding unnecessary expenses. Investing, for example, in regular property maintenance services can help you avoid catastrophic repairs and unplanned spending later.

3. Tax-Free Deductions

Real estate investing can be complicated. But one aspect most rental property owners tend to look for most are the tax-free deductions. Ordinary and necessary expenses are considered a write-off, including advertising, property maintenance, and insurance costs. What many investors don’t know is that property management partnership fees are also regarded as tax-free deductions. If you’ve been putting off exploring your rental property management options, knowing any fees for such services are write-offs might make taking that partnership step a no-brainer.

4. Opportunity Zones & 203K Loans

You can significantly improve your real estate portfolio’s bottom line if you can leverage opportunity zones and 203K loans. An opportunity zone is a community categorized as “disadvantaged” that comes with investment incentives for those who look to improve these lower-income neighborhoods. Separately from the opportunity zones, there are 203K loans available, designed to specifically allow investors to purchase and renovate properties or construct and convert them.

Not all of these investment tips will necessarily apply to your portfolio and real estate ownership journey. But if the idea of writing off the expenses associated with property management partnerships sounds appealing, contact us!

We are driven to keep Tampa rental property owners in the loop about the latest investment management news in the area. Tap into the latest insights by signing up for our free webinar, in which we review How to Streamline Your Rental Portfolio for Maximum Growth. This is a critical topic of discussion you don’t want to miss!

You can also join conversations with other like-minded property owners within our Facebook group. Learn and share tips, investor best practices, and fresh ideas with other savvy property owners. And if you’re interested in more tailored advice specific to your particular investment strategy, suggest a meeting time to my calendar, and let’s connect!