Thursday, November 19, 2009
Depreciation tax deduction
I figured I would talk about the other forgotten reason why owning rental homes is nice. You get a tax deduction for depreciation and other expenses related to the property. Depreciation is calculated by taking the purchase price of the home minus land value then divide it by 27.5. This tax deduction can save you money on taxes every year that you own the rental property. This is very beneficial for someone who is a w2 employee because these people don't get to write off items like self employed people. When I was a w2 employee, I would hardly pay any taxes and I would also select the least amount to be taken out of my checks every month. That really helped me on my take home pay. The rental tax deduction is limited to 25k per year.If you go over that amount during a year, you would just keep carry over the loss to another year. You can also carry that loss over until you sell a rental home for a profit. You would then just use that loss to offset any profit that was made from the sale of the rental home. I found out from my accountant that I have 240k in unused losses from my rental properties. That means if I buy a home today and pay 100k for it, and I sell it for 140k a year from now. I will not have to pay any taxes because I will use my unused losses to offset that income. I am very excited about the prospect of making money and not paying any taxes legally.