How is COVID-19 Affecting Rental Real Estate?

outside of a home

If you own rental property, 2020 may be a confusing tax year for you come April. You may want to consider changing your approach to your deductions.

As you most likely already know, you are able to deduct real estate taxes and mortgage interest as a rental property owner. You can also write off many operating expenses, including repairs, maintenance, groundskeeping, insurance, and utilities.

What may get confusing is the deduction for depreciation. You can depreciate the building itself – not the land it sits on. For a residential building, that depreciation is over 27.5 years, and for a commercial property, it is over 39 years. You can save a huge amount in taxes with your depreciation write-offs, particularly if you own multiple rental properties. Motley Fool has a helpful article about depreciation on rental properties.

Fallout from the pandemic may cause you to run up tax losses this year. Renters being unable to keep up with rent may wreak havoc on your bottom link.

If you are generating taxable income, good for you. You have to report your profits as passive taxable income, of course. If you have built up some passive losses from previous tax years, you can use those to offset your passive taxable incoming.

A great benefit to owning rental property is that you are *not* subject to self-employment (SE) tax. That tax can be more than 15%, and it is incurred by most unincorporate ventures that turn a profit – but not for owning and managing a rental property.