Tax Tips for First-Time Landlords

9 months ago Gino Hawkins

Home agents are using a calculator to calculate the loan period each month for the customer.

When you become a landlord in San Luis Obispo’s rental market, you need to comply with various tax laws. You might be renting out a second home, turning your old house into a rental, or buying several properties to rent. Whatever it may be, you should understand the tax laws because it is as important as finding good tenants.

Many new landlords are surprised by how many tax rules apply to rental properties. You need to report your rental income, and while doing that, you should also know how depreciation works. It also helps to know the difference between repairs (which can be deducted) and improvements (which cannot). The IRS has clear rules on what is taxable income and what you can deduct.

Since San Luis Obispo attracts people from all over the country, landlords need to know how to get the best tax benefits. Can you deduct your mortgage interest? What about property taxes? How do you treat security deposits? Instead of trying to figure it all out on your own, consult with a CPA in San Luis Obispo County, CA, today.

Tax deductions you should know about as a new landlord

If you are a new landlord in San Luis Obispo, it is important to know what tax deductions are available to you. This will help you increase the income that you make from your rental property.

One of the biggest tax deductions you can claim is interest payments. This includes the interest on your mortgage, loans for home improvements, and even credit card interest used for rental-related expenses.

Another important benefit to keep in mind is property depreciation. The IRS says that rental properties have a productive lifespan of 27.5 years. This allows you to deduct a portion of your property’s value annually. For example, if your rental property is worth $200,000, you may be able to deduct about $7,273 each year from your taxable income.

It can be challenging to calculate depreciation accurately without the help of an expert. To make sure that you are not losing money or breaking the law by inaccurate calculations, it is best to hire a CPA.

You can also save on taxes by deducting repair and maintenance costs. However, make sure you understand the difference between repairs and improvements. Repairs, like fixing a leaking faucet, can be deducted right away. However, improvements, such as remodeling a kitchen, have to be spread out and deducted over time.

How to plan your taxes for long-term success

Tax planning should not be something you think about only at tax time. You need to manage your taxes all year long with a good plan. When you plan everything in advance, you can organize your finances better and remain compliant at the same time.

There are various strategies that smart people use. This could mean timing when you sell property, checking your business filing status, or using certain investment strategies.

If you are a first-time landlord in San Luis Obispo, you might be surprised by how many expenses you can deduct. Some of them are obvious, but you may also be able to write off travel costs for managing your property, insurance payments, and fees for professional services.

There are additional benefits for people with a home office. You might be able to get deductions for that space as long as it is used only for managing your rentals and is used regularly.

However, remember that while deductions can help you reduce your tax liability, you still need the proper documents. As the rental market in the area grows, it becomes more and more important to work with experts and take their advice.