Tax Advantages to Owning Student Housing
Let me say right up front that I am not a CPA, so you will naturally want to consult with your tax preparation expert annually before filing your return. On the other hand, I’ve been in the College Station rental property ownership arena for many years, so I have a reasonably good working knowledge of this subject matter. This blog is only intended for you to gain a basic understanding of how owning a student home in College Station will provide tax advantages for the average person.
Owning rental property does indeed provide tax advantages in the form of expense deductions. When we talk about deductions, we are talking about the ability to offset or lower our ordinary income. What does this mean exactly? Let’s say that you earn a $100,000 salary per year in your job as an insurance agent and that is the sole source of your income. Expenses related to owning a rental property may be deducted so that you pay taxes on a lower amount. If you have $10k of rental property expense related losses, then you will pay taxes on only $90,000 of your insurance salary and not the full $100,000. If you are in the 28% tax bracket, then you pay $2800 less in income taxes for the year! That is over $230/ month that your rental property is putting back in your pocket!
What are some of these items which typically qualify as rental property deductible expenses? This list would include, but is not limited to:
-Property taxes
-Depreciation
-Mortgage Interest on loan
-Home owners Insurance
-Lawn Mowing and Landscaping
-Supplies- vacuum cleaner, windex, paper towels, cleaning agents etc
-Cleaning and Maintenance
-Repairs
-Business trip mileage to inspect your rental property
-You may even be able to hire your son or daughter to manage the property
So let’s see how all of this would be applicable to an investment property that you may purchase in the future. In this example let’s assume a $150,000 purchase price on a house which rents for $1500/ month. Here’s the way things could potentially look on your next income tax return.
$18,000 Annual Rental Income (12 months x $1500/mo rent)
(8950) Interest paid on loan
(3300) Annual property taxes
(5450) Depreciation
(600) Home owners insurance
(1200) Lawn and landscape maintenance
(1080) Property management
(3700) Cleaning and maintenance
(2800) Repairs
Supplies
($10,580} annual loss
This $10,580 loss on paper only, would be used to offset or lower your ordinary income. If you earned $100,000 in your career job, you would only pay taxes on $89,420 instead of the full $100,000.
