Real estate can provide steady income, and many people are drawn to it. Many landlords and investors also see tax benefits. Rental property depreciation is a crucial tool for maximizing tax savings, and key benefit landlords and investors can take advantage of.

Rental property depreciation allows landlords and real estate investors to deduct the cost of improving and buying a rental property.

This guide will help you understand what investors and owners need to know about tax season.

How It Works

Most tax deductions that a property owner can claim, such as mortgage insurance, property taxes, and HOA fees, can be deducted from rental income. These one-year expenses are deducted from your tax returns for the particular tax year.

There are times when costs and expenses can make a significant difference in your property's value for many years. For example, if you spend $10,000 to install a heating system in your rental home, it will pay off for years. This is where rental property appreciation shows its merits.

Landlords and investors have the option to take a deduction for the rental property's depreciation over its "useful life."

Determining the Depreciable Property

Real estate investing is not easy. This is especially true when it involves rental property depreciation. Many rental property owners consider the purchase of their property to be the most critical asset.

To be eligible for the tax benefits of property deduction, however, the Internal Revenue Service has specific guidelines.

• You are the property's owner.

• The property is being used in a business capacity or as an income-producing asset.

• It has a life expectancy that can be determined. This means it will eventually wear out due to natural causes.

• You anticipate owning the property (or that it will last) for more than one year.

It would help if you also kept these other factors in mind. For example, if you sell or cease to use the rental property for business purposes within a shorter period, you cannot claim any deductions.

The land is not depreciable. The total property value is deducted from the fair market value and real-estate tax assessments to calculate the depreciation value.

Once your property is ready to be occupied, you can begin depreciation deductions. You can continue this until all costs have been deducted or the property is no longer used as a business or income-producing capacity.

The IRS offers more information on tax deductions and record-keeping in its guide to rental owners and investors.

Basic Math

You will need to depreciate and capitalize the costs you have spent on the improvements to get the maximum benefit from the investment.

If, for instance, the new heating system is $10,000 in cost and the useful lifetime of the heating system according to the IRS is 27.5, then you can deduct $364 per year. This is the cost divided by the years of use.

The IRS has tables that outline the valuable lives of common investments, property repairs, and expenses. To maximize your potential benefits, it's a good idea for you to get tax advice from an accountant who is experienced in investment properties.

You can get tax benefits over the long-term by understanding how rental property deduction can help you, whether you are just starting to invest in real estate or looking to purchase your first rental property.