Advantages of Mortgaging a Rental Property

Taking a mortgage on a rental property comes with its own set of advantages. You can always buy your own property and rent it out. However, purchasing a rental property has long-term benefits. Financially speaking, rental properties can be very profitable, depending on the return you reap has to be greater than what you could earn in conservative investments, such as bonds and stocks. This is due to the real risks involved. If you want to know about the benefits of mortgaging a rental property, you have come to the right blog. Just read on for all the details you would need to understand whether you should go ahead with purchasing one. You can also get in touch with Nikhil at GNE Mortgages for further details.

Several benefits of mortgaging a rental property

Tax benefits: The Internal Revenue Service (IRS) allows you to deduct many expenses connected with rental property in the categories of:

• Property improvements
• Ordinary and necessary expenses
• Property depreciation

Meaning, you would be allowed to deduct your insurance, interest on your mortgage, maintenance costs, and physical wear-and-tear on your rental property.

In addition, the 2017 Tax Cuts and Jobs Act offers several tax benefits for landlords. If you own a flow-through entity (also known as a pass-through business) and operate it as a sole proprietorship, limited liability company or S corporation, you can deduct an amount that is equal to 20% of your net rental income. However, this is only applicable if your total taxable annual income from all sources after deductions is less than $250,000 for singles or $500,000 for married couples who file jointly.

Seasonal rentals: If you are renting your property seasonally, you will have the option to use it for yourself for 14 days every year or 10% of the number of days that you rent to others at a fair market price, and you will still be able to deduct your expenses.

1031 Exchange: In a 1031 exchange, you will have the option to sell a rental property and invest in another type of similar property without paying capital gains taxes.

Renting extra space: You can also treat a room or area of your home- for example- a garage, basement, or an accessory dwelling unit like a rental, writing off a percentage of the mortgage interest and other expenses against its income. However, you should be aware of the potential pitfalls of renting out extra space, including local zoning rules.