If you possess rental properties, then these are counted as sources of income by the State; therefore, you are compelled to pay taxes on them. However, there are certain features unique to rentals that can actually help you save money on taxes if they are implemented properly.

Rental Property Tax Benefit: Depreciation Deduction

Everything degrades – including rental properties, of course. It turns out that you may be able to benefit from the taxes associated with this depreciation; but only if a certain crucial requirement is met. For starters, the Internal Revenue Service (IRS) allows you to take an annual tax depreciation deduction for every year you own the property; however, once you sell it, you have to subtract the total amount of depreciation deductions. So, how would you actually be able to benefit if you have to, effectively, give it all back?

By holding the rental properties until a year arrives in which you are in a lower tax bracket. This also works in your favor if you are a holder of multiple properties, and can offload these at a loss.

Nonpassive Activity Bonus

The passive income that you generate from your rental properties has rules associated with it that may make it difficult to generate enough to overcome the depreciation deduction if you sell (assuming you can’t sell it in a time frame that places you in a lower tax bracket). However, if you are able to engage in enough activity – under stated IRS rules – to declare nonpassive activity with respect to your real estate investments, then you may be justified in deducting up to $25,000 if you’re married or $12,500 if you’re not.

Other Deprecations on Rental Properties

The tax rules can be involved – which is why you should consult an expert to be sure you aren’t missing out on any deductions. A few of the other ones you may be able to take from owning rental property are advertising, cleaning, insurance, management and even traveling to-and-fro.