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Harold Willig: The Potential Tax Advantages And Consequences of Investing in Single-Family Home Rent

If you own a single-family home rental property or properties – or own properties within a private investment fund - you have tax advantages.

The IRS allows most of your expenses on investment properties to be deductible or depreciated. And you can depreciate the property.

Deductible Expenses

Interest. The interest you pay on rental property mortgage can be deducted on your tax return. (The part of your mortgage that pays down the equity can’t be deducted.)

Travel. If you travel to the property for regular inspections, you may deduct those expenses.

Management fees. The monthly cost of your property manager is deductible.

Repairs. Your cost to fix a broken air conditioner, leaky faucet, or troublesome toilet may also be deductible.

Accounting fees. Have you paid an accountant to help you determine what amount of interest, travel, management, and repair expenses are deductible? The expense incurred for your accountant may be deductible as well.

If you improve your property, though, by converting a carport into a living room for example, it’s not a deductible expense. However, improvements can be depreciated on your tax returns, just like the rental property. And the improvements can be depreciated faster, from three to 20 years, unlike the 27.5 years for the property.

Deduction Maximums

Do you spend more than 50% of your time on rental properties? Well then, the IRS says you are in the real estate business. And if you are in the real estate business, then there is no limit to the losses or deductions you can take on the investment properties.

If you are not in the real estate business, though, you can take a maximum loss of $25,000 according to the IRS. The more money you make, though, the less of a loss you can count towards other income. Deductions and depreciation counteract the money you made on the rental properties, but it might not help reduce your regular income taxes.


Depreciation lets your rental property show a loss, even if it made money. The IRS says a house will last 27.5 years, so you can deduct the cost basis of the rental property in equal parts over 27.5 years. But what the IRS givith, it can taketh away. Depreciation can be “recaptured” if you sell the property for at least the amount of your cost basis minus the depreciation.

Cost Basis

“Cost basis” is the cost of the rental property - the structure, not the land. For example, if you buy a property for $100,000, the entire $100,000 is not the cost basis. The cost basis is the building minus the value of the land. Your closing costs can also be included in your cost basis.

As always, talk to your tax advisor for details particular to you.

For more information on why you should consider investing in a professionally managed portfolio of single-family homes, please contact Harold Willig at 917-209-4452.

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