Rental Income and Taxes for Long Island Investors

Rental Income and Taxes for Long Island Investors

Investors in rental properties on Long Island need to be aware of various tax considerations related to their rental income. Here are key points to understand:

  1. Rental Income Taxation:
    • Rental income is generally taxable, and it must be reported on your federal and state income tax returns. This includes income from renting out residential or commercial properties.
  2. Deductions for Rental Expenses:
    • Investors can offset their rental income by deducting various expenses associated with the property. Common deductions include mortgage interest, property taxes, insurance, maintenance and repairs, property management fees, and depreciation. Keep detailed records of all relevant expenses to maximize your deductions.
  3. Depreciation:
    • The cost of the property, excluding land value, can be depreciated over a specific period (27.5 years for residential properties and 39 years for commercial properties). Depreciation is a non-cash expense that can help reduce taxable income.
  4. Qualified Business Income Deduction (QBI):
    • Under certain conditions, real estate investors may be eligible for the Qualified Business Income Deduction, which allows them to deduct up to 20% of their qualified rental income.
  5. Passive Activity Loss Rules:
    • The IRS has rules regarding passive activity losses. If your rental property generates a loss, you may not be able to deduct the full amount against your other income, depending on your level of involvement in the property. Consult with a tax professional to understand these rules.
  6. Local Property Taxes:
    • Property taxes paid on your rental property are generally deductible. Long Island property taxes can be significant, and deducting these taxes can help offset the overall tax liability.
  7. State and Local Tax (SALT) Deduction:
    • There may be limitations on deducting state and local taxes, including property taxes, under the Tax Cuts and Jobs Act (TCJA). It’s important to understand the impact of these limitations on your tax situation.
  8. 1031 Exchange:
    • Long Island investors may consider a 1031 exchange, allowing them to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another similar property. This strategy requires adherence to specific rules and timelines.
  9. Record-Keeping:
    • Maintain thorough and accurate records of all income and expenses related to your rental property. Good record-keeping is essential for accurately reporting income and claiming deductions.
  10. Consult with a Tax Professional:
    • Tax laws can be complex and subject to change. Consult with a qualified tax professional or accountant who specializes in real estate taxation. They can provide personalized advice based on your specific situation and help you navigate the complexities of tax laws.

It’s crucial to stay informed about tax laws and regulations, and working with a tax professional can help ensure that you are taking advantage of available deductions while staying in compliance with the law.

Rental Income and Taxes for Long Island Investors

What  Real Estate Investors Need to Know About Rental Income and Their Taxes

While there are many upsides to investing in real estate compared to other investment vehicles, the ability to take tax deductions on your investment is one of the main reasons real estate investing is so attractive. Investing your hard-earned dollars into rental properties will allow you to realize returns on the investment both in current cash flow and over the long-term and take advantage of several tax benefits that further enhance your long-term growth potential.  

So read on as we explore what Long Island real estate investors need to know about rental income and their taxes.

Documents

One of the first things Long Island real estate investors need to know about rental income and their taxes is to follow a system to organize your records so that filing at tax time can be as simple as possible. In addition, you may gain more by itemized deductions. A financial adviser can help you determine the best strategy for your specific real estate investments and help you zero in on which receipts are essential to keep for a suggested period of seven years.  Any lease agreements and applications, as well as inquiries, should be held as well. Finally, retain separate records for each property, including documents that prove your rental income, expenses, and the documentation to support both.

Depreciation

Depreciation which allows you to recover the costs of maintaining a structure is a deduction that can be taken only for rental properties and is another beneficial deduction that Long Island real estate investors need to know about when looking at the potential rental income and their taxes.  The condition of the building will erode over time, so too will the value of the structure. Investors are allowed a specific period for these deductions depending on the type of structure. For residential rentals, the period is 27.5 years which is considered the useful lifespan of the property. The deduction is divided over the years that the property serves as a rental or you’ve recouped the investment cost, whichever comes first. When you deduct your expenses from your rental income, you can subtract your depreciation before multiplying by the tax rate, providing significant savings.

Mortgage Interest Deduction

Whether it is the original mortgage or secondary for making qualifying repairs to a residential rental property, the deductions for the interest on the loan can add up to significant amounts and an essential tax deduction that Long Island real estate investors need to know about for their rental income. In addition, unsecured loans, or loans without collateral, used to purchase the rental property are deductible. Finally, the interest on credit card interest qualifies for a deduction if used for your real estate investment business.

Insurance, Property Taxes, HOA

Another write-off that Long Island real estate investors need to know about for their rental income and taxes are insurance premiums on the property. In addition, should you have employees on which you carry health insurance, there are further tax deductions for which you will qualify. Additionally, property taxes for your rental property are also deductible if not paid into an escrow account with a conventional loan, which would not be deductible. Finally, if your rental is in a community with an HOA, Homeowners Association, any fees paid are also deductible.

Utilities

Long Island real estate investors need to know about writing off property taxes the tenants do not pay or utility services they provide for their tenants, realizing even further savings on rental income and taxes. 

Legal and Professional Fees

When conducting a real estate investment business, the need arises for legal counsel or a CPA or computer software to prepare your taxes, or perhaps a real estate agent who will charge commissions. Long Island real estate investors should also be aware of the deductions for these and other qualifying fees on rental income and their taxes.

Repairs, Maintenance, and Cleanings

While improvements to the property provide tax benefits through depreciation, Long Island real estate investors need to know that they can also deduct repairs, maintenance, and any charges for cleaning their rental properties from their rental income.

Office Space, Travel

Long Island real estate investors should know that office space and equipment used for your investment business are deductions. In addition, if you must travel a great distance in the conduction of your real estate investment business, these expenses are also deductible within the given guidelines.

1031 Exchanges

Long Island real estate investors should also know about using 1031 exchanges to defer capital gains on swapping one rental income property for another.

Let the highly experienced local pros at Tristate Holdings 167 help you find the investment properties available; we know the market. Long Island real estate investors can rely on the full-service team at Tristate Holdings 167 for great deals. Don’t forget to ask about our current inventory of the best rental properties in Long Island. Contact Tristate Holdings 167 today at 1-(888) 788-7478.

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