![]() ![]() How to Keep Accurate Rental Property Records If the cost of a home is $150,000 (not counting the lot) the annual full year depreciation would be $5,455 ($150,000 / 27.5 years).įor example, if the annual pre-tax income from a property is $5,000 and the depreciation expense taken is $5,455, the property would have a negative income of $455 for tax purposes even though there is positive cash flow of $5,000. The IRS allows residential rental property to be depreciated over a period of 27.5 years, excluding the land or lot because land does not wear out. There’s no monthly rental income coming in, but operating expenses and the mortgage must still be paid.ĭepreciation expenses can also create a loss by reducing taxable net income. Negative net income can occur when a vacant property is first purchased and the landlord is looking for a tenant. Depreciation to allow for the exhaustion, wear and tear of the property (a non-cash expense used to reduce taxable net income using IRS Form 4562 Depreciation and Amortization ).Īs long as a property is used as an investment intended to make a profit and not as the owner’s primary residence, deductible rental expenses can be more than the gross rental income, subject to certain limits.Owner business and travel expenses directly related to the property (such as visiting an out-of-state property in person).Property taxes and mortgage interest payments. ![]()
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