Since we’re right in the middle of tax season I wanted to talk to you about depreciation on your rental house. A lot of people are not taking advantage of this.
They either just don’t know about depreciation, are trying to do their taxes on their own, or are not using a CPA. If you are not taking advantage of this you are throwing away thousands of dollars at least every year in tax refunds.
So let me tell you how this works. The IRS says that a rental house or regular residential property whether it be a condo, townhouse, or single-family home depreciates over a schedule of 27 and 1/2 years.
What that means is that you can take the value of that property – the structure, not the land – and depreciate it over 27 and 1/2 years. What that translates to about 3.63% of the property value every year as a write-off for you on your taxes.
So just to do a quick calculation let’s say you just purchased a rental property for $400,000 and the land is worth 10% of that and the house itself is actually worth 90% of that value. We get a cost basis of $360,000.
Divide that by 27 and 1/2 and that’s a $13,100 tax write off every year and let’s say you’re in the 25% tax bracket…do the math there and that’s almost $3,300 in actual cash back into your pocket in the form of a tax refund or a reduction in your tax liability each year.
So don’t only deduct the actual expenses that you had like management fees and repairs, you need to depreciate the property as well. That’s going to put thousands back in your pockets.
If you’re not doing that talk to me – give me a call 720-735-0513 or shoot me an email at Tyler@wholepm.com and I can recommend a great CPA or talk through doing the depreciation yourself.
If you’re a real estate professional the tax deduction potential is even greater. So if you’re a real estate professional who owns rental properties, let’s talk about it. Let’s make sure that your CPA knows how to depreciate those properly particularly considering the bonus depreciation laws passed in 2017 as a part of the Tax Cuts and Jobs Act.
Again it’s email@example.com or 720-735-0513. Talk to you soon, thanks!