During inflationary times, real estate can act like a hedge against inflation. It can also provide some stability if a recession turns to stagnation. But remember, even when inflation is roaring, people still need housing.
1. Depreciate Personal Property
A rental property owner can save by depreciating personal property. This is allowed based on the property’s wear, tear, deterioration, or obsolescence. But this is limited to a set number of years.2. Betterment and Adaption to Property
There is a difference in deductions regarding improvement to a property and repairs.An improvement is considered a capital expense, and deductions are taken as depreciation over time. But repairs can be deducted in the same year.
This is where adaption and betterment come into play. If you are adapting the property to a new use or rebuilding the property to improve it, you may be able to deduct the expense. You can’t deduct an improvement as an improvement if it took a loss for damage.
3. Deduct Local and Long-Distance Travel
If you must travel locally, you can expense the use of your personal vehicle. There are two ways to do this: you can deduct the actual expense or the IRS standard mileage rate.4. Home Office to Conduct Rental Business
If you own a home office that you use exclusively for your rental property business, you may be able to deduct it. If you use a workshop to help in repairing rental property, this may also be deducted. Check with your CPA to see how you may qualify.5. Depreciation Required by IRS
Rental property is depreciated over 27.5 years. The building is depreciated by taking the cost of the building and dividing it over 27.5 years. The land isn’t depreciated, only the building.6. Deduct Insurance
The cost of property and casualty insurance premiums can be deducted on your rental. In addition, if you have employees, you can also deduct their worker’s compensation insurance and health insurance.7. Current and Capital Expenses
A rental owner has two types of expenses: current and capital.Day-to-day operational expenses like utilities can be deducted from your gross rental income in the tax year.
8. Pass-Through Deduction Until 2025
Established by the Tax Cuts and Jobs Act (TCJA) by President Donald Trump in 2018, the pass-through deduction is a special income tax deduction, not a rental deduction. This allows rental property owners to deduct up to 20 percent of net rental income. It also allows a deduction of 2.5 percent of the initial rental property cost and 25 percent of any wages paid to employees.9. Professional Services and Legal
As long as work it’s related to rental property business, specific fees can be deducted as operational costs. These include accountants, property management companies, attorneys, etc.10. Interest Rate on Mortgage
If a loan was used to purchase the rental property, the interest for the mortgage can be deducted. But there are restrictions.For example, if you purchased your home after Dec. 15, 2017, interest can be deducted from up to $750,00 of debt. But if you bought that home on or before that date, you can deduct up to $1 million on the debt.