Commercial Investment Property – Rental Properties & Tax Tips
If you are considering purchasing a commercial property to use for rental purposes, this can be a good option for gaining a steady stream of income. Or, if you have a property that is vacant because you can no longer occupy it, renting it out temporarily until you decide whether to keep it or sell it, can be a good option. There are many property owners faced with this decision due to job relocation, job loss, divorce or any other economic issues causing financial strain.
Purchasing a rental property or turning your current residence into one, can be a smart financial decision as long as you have a good understanding of the tax laws and how to use them to your advantage.
Three good tax tips:
- Tax deductions – there can be many tax deductions associated with rental properties such as property repairs, legal expenses and management fees which can be typical deductions. The less typical deductions can include keeping a log for mileage if your vehicle is used for business purposes along with cell phone bills used to conduct business. Become familiar with every tax deduction available so you can use them to benefit you.
- Capital Gains Tax– capital gains includes any gain or loss from the sale of capital assets. A capital asset is anything owned by an individual for investment or personal purposes. When a capital asset is sold, a gain or loss occurs. Capital gains are subject to tax depending on the length of time a property is being held for. When a rental property is sold you pay tax on the net income of the sale.
- Active & Passive losses – depending on if you are actively involved in the leasing of your property determines if you are active or passive ownership. If your investment property suffers a net operating loss, the loss is considered a passive loss and cannot be used to offset other earned income from your job. To avoid passive loss, try to become involved in the management or leasing of your property. Remaining active as an owner will help with tax advantages.
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