What are the tax benefits to owning rental property?

Dear William,

What are the tax benefits of owning a rental property? I have some cash I’d like to invest in real estate potentially. Let me know what you think!

Jeremy K

Venice, Los Angeles, CA

Hi Jeremy,

There are several tax benefits to owning rental properties. Since we are not certified public accountants in California but do understand what you’re asking, we made sure we asked my go-to licensed accountant Dennis Duban for his expertise.

Here’s what Dennis has to say:

“The primary tax benefit of owning rental property is that cash flow is typically tax free. That is because even though the rents exceed the operating expenses and interest expense (when there is positive cash flow) there is depreciation expenses which will usually result in a loss for income tax purposes. Depreciation is a part of the IRS code that allows you to write off the portion of a property that represents the value of the structure when isolated from that land over a period of years (27.5 for residential and 39 for commercial) and shorter periods for certain improvements. When and how the losses are deductible is another story and can result in other significant tax benefits. But even using the cash flow to pay down mortgages and build up equity is a tax free way to build wealth. There are also tax benefits to short term rentals which can be even greater than long term leasing tax benefits.”

- Dennis L. Duban

dduban@dldcpas.com

Now let’s find you a rental property!

William