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Nine Rental Real Estate Tax Tips

1. Income from property rented for 14 days or less, does not need to be reported.

2. Expenses related to the rental property can be deducted.

3. Expenses on a vacant rental property can be deducted as long as tenants are actively being sought.

4. Depreciation should be taken on rental property. The IRS considers depreciation to have been taken on your rental whether or not you recorded the depreciation on your tax return. When the property is sold gain needs to be recognized to the extent of any depreciation.

5. Rental losses can offset certain types of income. Up to $25,000 of losses can be offset against other taxpayer income where the taxpayer's gross income is less than $150,000 and the taxpayer is actively involved in the management of the rental property.

6. An active real estate professional can take unlimited losses. A person is considered an active real estate professional if 750 hours and more than one half of his or her job or business related time is spent on real estate.

7. Like-Kind Exchanges are an excellent way of deferring gains on the sale of a property. This technique can allow one property to be sold and exchanged for another without recognizing a gain on the property being sold

8. Planning for the year-end can defer taxes for an entire year. Where possible the taxpayer should pay expenses before the end of the year and arrange for rents to be collected at the beginning of the next year.

9. Non-resident aliens should always elect to treat their rental property as a business. This avoids the 30% flat withholding tax and allows deductions to be taken.

(This information is designed to be of general interest.  The specific techniques and information discussed may not apply to you.  Before acting on any matter contained herein, consult with your professional advisor.)


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