Tuesday, January 9, 2007


When it comes to owning rental property, one of the major benefits has to do with the exceptionally large array of tax breaks that accure to rental property owners.

In "Rich Dad, Poor Dad", author Robert Kiyosaki rightly points out that the entire tax code is built to encourage certain activities (like landlording and real estate investment), while punishing others (like traditional W-2 employment).

For most rental property owners, the tax result is that all your income and expenses, including depreciation, are reported on Schedule E of your tax returns. Virtually every applicable expense is deductible on Schedule E, such as mortgage interest, property taxes, insurance, homeowner association fees, utilities you paid, repairs, and depreciation.

In addition, you can deduct reasonable “ordinary and necessary” travel expenses to inspect (but not occupy) your rental property, even if they are located out-of-state (or in really fun places, like Hawaii).

As an investor deducting your rental property's interest, expenses and maintenance costs, you are very likely to have a tax loss on paper.

That means if your 2006 adjusted gross income is $100,000 or less, you can deduct up to $25,000 tax loss from your passive rental activity. But any rental tax loss exceeding $25,000 must be carried over for use in a future year, or when you sell the property to offset capital gains.

There are scores of good books out there on the subject of real estate tax law. I strongly suggest you take the time to acquaint yourself with the basics. Dolf de Roos is the author of "Real Estate Riches", a concise, easy read that touches on many of the most important elements.

For the new year, I believe everyone should resolve to be proactive about securing their financial future. Read a book, talk to an accountant, converse with an investor... learn what you need to know so that nothing stops you from making an important investment in your future!