The Tax Benefits of Buying a Rental Property

One primary reason persons buy rental properties is because of investment benefits. Many rental property owners may already know of this. But few maybe aware of the various tax benefits they may reap. Here are some of them.


One of the first tax benefits that rental properties accords their owners is depreciation. It deduces the costs involved in buying and improving the property. Instead of the tax deductions being taken as one large chunk during the year when the property is purchased, the depreciation is spread across its useful life. You can start depreciating the property once it is placed on lease, not when someone starts leasing it. To better understand this specific tax benefit, one might need to consult with the IRS.

Dual-use deductions

A lot of rental properties can be used for dual-use deductions. With professional help from accountants, one can maximize the legal tax deduction claims. Tax benefits like this are commonly applicable to properties that are located in vacation or tourist spots. For instance, if you own a rental property in a beachfront, you can write-off deductions involved when you visit it for periodic inspections.

1031 Exchanges

Do you know that you can defer capital gain taxes through accurately structured 1031 Exchange? Section 1031 of the IRC allows you to sell a property, to reinvest the proceeds into a new property, and eventually write off the capital gain taxes. It states that, No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

Property owners who plan to use the 1031 Exchange should learn carefully what like-kind means because the tax code has no such definition for it. Better yet, consult tax advisors or real estate agents to have better understanding of the terminology.

If you are contemplating of buying a rental property, think of the various tax benefits that can be on your side. Depreciation, dual-use, and 1031 exchanges are three of them. Each one of them have certain processes to follow to qualify. Consult a property tax advisor for legal advises.

For other real estate concerns, your local real estate agent can always extend his or her professional expertise. He or she can also connect you to tax consultants within his network.

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