Owning a rental property provides you with similar tax advantages to personal home ownership, such as the ability to deduct mortgage interest and property tax. It also affords you the ability to deduct qualified business expenses, like a business owner would. These federal benefits are available to rental property owners in Massachusetts, Rhode Island, and many other states.
Let’s take a closer look at two of the largest tax benefits associated with investing in a multi-family home or rental property:
Tax Write-Offs
Tax deductions, or tax write-offs, are one of the biggest advantages of owning a rental property. They typically include expenses associated with maintaining the property. Common tax deductions for rental properties include:
• Property taxes
• Insurance premiums
• Maintenance and repairs
• Utilities
• Equipment (if the space is used as an office for the operation)
• Mortgage interest
The exact deductions you may qualify for will depend on your unique financial situation and the property you own. Before purchasing a rental property, it’s always a good idea to consult with a financial advisor or tax professional to ensure you fully understand all tax benefits and implications.
Depreciation
Any building you own will deteriorate over time due to natural wear and tear. The building may appreciate in overall value, but in most cases, the tax code will allow you to treat a rental property as if it will only last 27 ½ years from the time you begin using it. As such, you are generally allowed to deduct 3.636% of its value every year as depreciation. So, as a simplified example, if you purchased a building for $550,000, you could deduct roughly $19,998 per year ($550,000 * 3.636%), from your profits when you calculate your taxes.
Owning a multi-family home or single-family rental property could potentially be a wise business move. Before considering this kind of purchase however, it’s important to not only talk with a qualified mortgage loan officer about financing options, but with an investment professional or tax advisor as well. If you’re interested in starting a conversation about financing an income property in Massachusetts or Rhode Island, don’t hesitate to contact us today.