Tax Benefits - REIA of Macomb
Most folks get into real estate investing because they want to retire early or with extra income that their employer will not be providing for them. As they dig deeper into the business they decide that they either want to flip & wholesale or they are interested in long term holds and becoming landlords. This article reveals the 3 biggest benefits to owning Michigan rental property.


Rental property is subject to depreciation, so when you buy a rental property the actual cost of that house, apartment building or other rental property is not deductible in the year you buy it. Depending again on the type of property it is and whether it’s residential or commercial, you are allowed to deduct a portion of the cost of your rental property each year. This also applies to certain repairs and such features as furniture, appliances, fixtures, etc. For this article lets assume you have a rental house you paid $100,000 for. The land value is 15% so the improved structure, the house and garage if applicable are valued at $85,000. You would be able to depreciate or reduce your capital gains $3191 per year for this home up to 27.5 years. Imagining again that you cash flowed $200 per month on this house you just negated all of your cash flow as far as the IRS is concerned.

Tax Write Offs/Expenses

Some common tax write-offs with all real estate include mortgage interest and real estate or property taxes. With rental property, you can also deduct any and all expenses you incur to operate that rental. The most common ones would be utilities; insurance; supplies; condo fees or H.O. A. dues; professional fees, such as attorneys, CPAs, property management companies and travel expenses. These are deductible as long as these fees are for work related to your rental activity. You can also write off repairs and improvements; however, these can be tricky because you can deduct repairs, such as, fixing a leaky faucet or replacing a faulty light switch, but improvements, like a new roof, retaining wall or boat dock, are not deductible all at once. They must be depreciated over a certain number of years assigned by the IRS, depending on whether the property is a residential or commercial rental. Remember repairs maintain or keep your property in good condition and improvements add value to the property or prolong its useful life.

Long Term Capital Gains

Another great benefit to owning rental property or any property for more than 365 days is you are not subject to ordinary income when you sell the property for a profit. You will be taxed according to whatever rate long term capital gains are at when you sell. At this point in time they are 15%. The typical rate most working citizens are at is 28%. So by holding the real estate for 366 days or more you’re possibly paying half as much to the government.
BONUS – Appreciation

Assuming you get the property at the right price it’ll go up in value before you sell. So add together all of the benefits spelled out above along with the fact your tenants will pay your mortgage, & the house has gone up in value is a recipe for mega success as far as your bank account is concerned. So the next time someone tells you that you’re crazy for owning rental property or that tenants suck, just smile all the way to the bank!


    2 replies to "The 3 Biggest Tax Benefits Of Owning Michigan Rental Property"

    • Jeffrey Chase

      You left off the unlimited losses that can be written off if you file “Real Estate Professional” status with the IRS. This status is much more useful if you can qualify for it rather than “passive activity” losses.

    • Rockford Johnson

      I learned a lot about the benefits of owning rental property by reading this article. It was interesting to learn that rental properties can help to make you money. I hope that this article can help me to know what I should invest in in the future.

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