Rental Property Tax Implication
If you have a rental property or planning to have one, make sure to not miss any tips below. For more information, call (415) 767-6664 for more information.
Depreciation
Capturing all depreciation deduction allowed
Depreciation is an accounting term that reduce the value of an asset with the the passage of time.
An owner of a rental property is entitled and allowed to take a depreciation deduction on their rental property.
It is essential to ensure you are capturing all the depreciation allowed, as there is a tax disadvantage if you have not taken any depreciation when you sell your property.
If that might apply to you, contact us today for a free consultation.
Passive Loss
Calculate the correct passive loss limitation
Often times you might hear rental property owners discuss on utilizing their rental loss to offset their regular income or wages. It is critical that the passive loss limitation is correctly calculated on your tax returns.
If you are earning an annual income that exceeds the threshold for passive loss, you might not be able to deduct any passive loss to offset your ordinary income. Any unutilized passive loss will be carried over to the future years.
The passive loss limitation does not apply to Real Estate Professional.
Selling your Property
Plan ahead before you sell your rental property
When you are selling your primary residence, you are allowed to be exempt from paying taxes on capital gain of $250,000 or $500,000 based on your tax status.
Selling a rental property is usually not as easy as you think. You might consider utilizing 1031 exchange to defer your taxes. However, if you are not planning to be owning another rental property, contact with a tax professional to determine the tax effect for the sale.
Some important topics that you should inquire:
Passive loss carryover
Depreciation recapture
Estimate tax payments
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