of marketing, not property management) • property management fees, salaries, and benefits (if you manage yourself and your business is an LLC or corporation, you may be able to be employed and have your salary be deductible) • homeowners’ association fees (HOAs), as well as whatever HOA requires, such as specific “For Rent” signs • professional and legal fees, including bookkeeping, filing taxes, and all legal work • any losses incurred up to $25,000 per year; anything over that can be carried over to the next year. Note that your tax savings will be less than you lost • Social Security (FICA) or self-employment taxes (the benefits vary, but can range from about 7.5% to 15.3% of your profit) • second/vacation homes rented out for at least two weeks per year might allow you to write off advertising and rental commission and prorate other expenses • some states have historic tax credits that include both the rental operation and/or any renovations • incentives from your state or locality to invest in lower- income areas You’re also required to take a deduction for depreciation. Just know that when you sell a rental property, you’re subject to depreciation recapture. Any gain that has to do with depreciation is taxed at 25% (as opposed to 20% for regular capital gain). The depreciation-related gain is also called unrecaptured section 1250 gain. One way to mitigate this is to always keep track of passive activity losses. While they may not be deductible while you own the property, they are when you sell it, which means the amount 21
Powered by FlippingBook