Last Minute Tax Saving Tips for Your Investment Property!
People frequently purchase investment homes with the belief that their property ownership is a tax write-off. While this is often true, in many cases real estate provides an owner with virtually no tax savings at all. With tax day upon us, here are some last minute tips/ways for you to save money on your taxes by utilizing your rental property.
- 1040 Form All annual personal income tax reporting ends with an individual filling out their two page IRS 1040 main tax form. In order to reduce one’s taxes as much as is legally allowed, taxpayers use deductions and losses to reduce their starting 1040 Form Gross Income to the lowest Taxable Income possible near the bottom of the 1040 form. One of those deductions or “losses” that helps reduce your taxable income is related to real estate rental property operations that are calculated on the schedule E form and flow to your 1040 Form line 17.
- Schedule E Mechanics
As a rental property owner, fill out your Schedule E with all your property’s income and expense items for the year. The top number is the rental income, then they subtract expenses like maintenance, property taxes, insurance, mortgage interest, and depreciation. If the net number is a loss, that loss goes onto the 1040 Form line 17 and is a reduction of your personal income. That reduction flows through your entire 1040 form to reduce your taxable income and hence reduces the amount of taxes you’ll pay.
That’s it! That’s how easily your rental property saves you money on your taxes! Nice and easy, right? One thing to note, however, is that there are limitations that the IRS enacted to prevent the uber wealthy property owners from bucking the system. If you are potentially one of these wealthy, or if you have never filed a 1040 or Schedule E, I would highly suggest you hire a tax accountant to help you. It could save you thousands on your tax return!