The Tax Advantages of Being a Landlord

Favorable tax rules are a big reason why so many invest in Flagstaff real estate

I’m reminded this week that some folks mistakenly look to an upswing in Flagstaff home prices as the opportunity they have been hoping for to make a “return on the capital” they have invested in Flagstaff rental properties. If they have owned the rental property for the last few years, even during the down time, they should already have been experiencing a return on capital. That return comes in the form of rent paid by their tenants and also in the form of tax benefits offsetting income. Looking forward, you should consider these benefits of investing in Flagstaff real estate as well.

Most people know they can deduct mortgage interest and real estate taxes on their investment properties, just like on a primary residence. But with investment properties there is more: You can also write off all the other standard operating expenses that go along with owning a rental property: utilities, insurance, repairs and maintenance, yard care, association fees, and so forth.

The real kicker is that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. Say your Flagstaff investment property —not including the land—cost $200,000. The annual depreciation deduction is $7,273, which means you can have that much in positive cash flow without owing any income taxes. This can come back to kick you when you sell the Flagstaff home or townhome because you pay 25% of whatever you’ve deducted in depreciation in “recapture” taxes. But that leaves 75% on your side of the equation!

If you own rental properties in years when you are earning other income, the deductions of the rental properties can be used to offset taxes you’d owe on that other income. So, don’t just look for a return on investment in your sale price. Analyze the investment over the years you intend to own the Flagstaff home.

Like any investment, you need to decide if owning a rental home is right for you. What are the alternative ways to earn money on the money you have to invest? Is the work involved in being a landlord something you have time to do in your busy life? Consult your tax advisor. Think about what you’d do when the tenant calls with a water leak in the middle of the night. (Of course, that one could be turned over to a property manager.) Read the two articles from whose links are below for further thoughts on investing in real estate.

If you decide that owning a rental property makes sense for you, give us a call: 928-714-0001. Or start looking for Flagstaff homes here. We’re the Elite Team at RE/MAX Peak Properties, ready to help you buy or sale any Flagstaff home.

Related Articles:

The Tax Advantages of Being a Landlord – TaxWatch – MarketWatch

Before Becoming A Landlord Add Up the Costs

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Flagstaff, AZ 86001
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