How to Maximize Tax Efficiency of Your Rental Properties

Posted on July 24, 2020 by Jeff Tumbarello in Market Updates

If you own rental properties and want to get more income out of them, there are multiple ways to do just that. One way to do that is to maximize tax efficiency. Specifically, you can maximize the tax efficiency of your rental properties by doing several different things.

Maximize Tax Efficiency: Live in the Properties for Two Years

By making the property your primary residence for two years, you can get tax benefits. Living in the property for at least two years means you qualify for up to the first $250,000 (if you are single) or $500,000 (if you are married) of capital gains tax-free. Moving around that much can be a hassle, but it is also a way to earn money without having to pay the normal taxes on it. In addition, while you are living in one of your rental properties, you can also make improvements to the property and upgrade the home, thus increasing its value.

Put Them in an LLC

You should put your rental properties in an LLC in order to separate them from your personal finances. This will allow you to limit your personal liability, separate your rental properties from each other, and get the benefit of pass-through taxation, as well as easily separate your personal expenses from your business expenses.

Any landlord is capable of creating an LLC, and you can do so before or after purchasing your rental property or properties. If you choose to create an LLC, make sure you register it and be aware that there are some expenses that will accompany registration. An LLC will usually require state and sometimes local fees to register.

Maximize Tax Efficiency: Maximize Your Deductions

When you invest in real estate, you have the opportunity to deduct many expenses from your taxes. Some expenses you can deduct include mortgage interest, insurance, property taxes, maintenance costs, property management fees, advertising expenses, legal fees, closing costs, home office costs, travel expenses, depreciation, and more. Make sure you are taking advantage of the tax deduction possibilities you have as a landlord; you don’t want to miss out on possible ways to minimize your taxes.

As someone who owns rental properties, you have many opportunities for maximizing the tax efficiency of your properties. Take full advantage of those benefits by making the most of them. Live in your properties for two years in order to be exempt from capital gains taxes, put your properties into an LLC, and maximize your tax deductions.

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Steelbridge Realty LLC is a Licensed Real Estate Brokerage that utilizes cutting-edge marketing techniques and data-driven Real Estate solutions in today’s ever-changing environment. Our group of professionals have decades of experience and have navigated through many business cycles. Our diverse background gives us the tools to guide people towards successful decisions.