Here are some tips for those of you in California who are thinking about investing or becoming a landlord.
Income from real estate can be a great way to generate income, allowing landlords and property investors to diversify their portfolios.
However, there are many different ways for the income from rental properties to affect your tax liability.
The first step to take is to figure out if you are going to sell the property at some point. If so, then you will want to wait until it is sold before deducting any of your costs.
The second step is figuring out if you have an interest expense on the property or a depreciation expense. Depreciation allows for landlords and investors to claim an annual deduction for the wear and tear on their property such as plumbing fixtures and carpeting.
There are a few different types of interest expense. Primary residence interest is the portion of your mortgage which is attributable to your primary place of residence and is deductible in most cases. This means you can deduct it even if you are a renter and the property does not produce any income at all. Senior citizens living on a fixed income, are likely to have more than one home, so this type of deduction can be very useful for them. This type of interest expense only applies if you live in the home that you own and do not rent it out while living there. You cannot claim this type of interest expense when renting out another person's property or when renting out your personal vehicle either.
Income from real estate can be a great way to generate income, allowing landlords and property investors to diversify their portfolios.
However, there are many different ways for the income from rental properties to affect your tax liability.
The first step to take is to figure out if you are going to sell the property at some point. If so, then you will want to wait until it is sold before deducting any of your costs.
The second step is figuring out if you have an interest expense on the property or a depreciation expense. Depreciation allows for landlords and investors to claim an annual deduction for the wear and tear on their property such as plumbing fixtures and carpeting.
There are a few different types of interest expense. Primary residence interest is the portion of your mortgage which is attributable to your primary place of residence and is deductible in most cases. This means you can deduct it even if you are a renter and the property does not produce any income at all. Senior citizens living on a fixed income, are likely to have more than one home, so this type of deduction can be very useful for them. This type of interest expense only applies if you live in the home that you own and do not rent it out while living there. You cannot claim this type of interest expense when renting out another person's property or when renting out your personal vehicle either.
