Make sure to call The Lawhead Team! Though it may be a lot of work finding a tenant to rent your home to fixing minor to major repairs throughout the home, one of the best benefits of owning a rental property are the considerable tax deductions.

• Insurance deductions: You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.
• Legal and professional service deductions: You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
• Capital gains on a rental property: When you sell a rental property, the profits are taxed as capital gains as opposed to ordinary income. The difference is important, because the maximum capital gains rate is 15 percent, whereas the maximum tax rate on ordinary income, as of 2010, is 35 percent.
• Doing a 1031 Exchange on a rental property: If you plan to sell your rental property and buy a larger one, there is only one smart way to do it: through a 1031 exchange, also called a deferred exchange. In this process an exchange facilitator takes the cash that comes out of your sale and holds it until you close escrow on a replacement property. You must identify that property within 45 days and close within six months. It must be purchased for more than the price for which you sold your first property. If you keep using exchanges to sell and then buy, you defer the tax due forever.
• Tax-free cash out: When you sell without doing a 1031 exchange you pay taxes on the profit; when you take cash out through a refinance, the money is tax-free until you sell. If you never sell, you never pay taxes. This is an excellent tax strategy for retirement: once you pay off or pay down the mortgage on a rental property you can refinance it and take cash out and still have the monthly rents coming in.

Did you know there are many tax benefits when it comes to owning a rental property? Check them out below:

Just about every expense associated with a rental property is deductible. The following are tax deductible costs associated with owning a rental property:

• Cleaning & Maintenance
• Homeowners insurance
• Mortgage Interest
• Property taxes
• Utilities (if you pay them instead of the tenant)
• Phone costs, PO Box, internet costs related to your rental property
• Repairs & Supplies
• Educational Expenses
• Real estate club dues
• Tenant credit report fees
• Professional fees
• Management Fees
• Homeowners association fees

Insurance deductions: You can deduct the premiums you pay for almost any insurance for your rental property activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.

Legal and professional service deductions: You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental property activity.

Capital gains on a rental property: When you sell a rental property, the profits are taxed as capital gains as opposed to ordinary income. The difference is important, because the maximum capital gains rate is 15 percent, whereas the maximum tax rate on ordinary income, as of 2010, is 35 percent.

Doing a 1031 Exchange on a rental property: If you plan to sell your rental property and buy a larger one, there is only one smart way to do it: through a 1031 exchange, also called a deferred exchange. In this process an exchange facilitator takes the cash that comes out of your sale and holds it until you close escrow on a replacement property. You must identify that property within 45 days and close within six months. It must be purchased for more than the price for which you sold your first property. If you keep using exchanges to sell and then buy, you defer the tax due forever.

Tax-free cash out: When you sell without doing a 1031 exchange you pay taxes on the profit; when you take cash out through a refinance, the money is tax-free until you sell. If you never sell, you never pay taxes. This is an excellent tax strategy for retirement: once you pay off or pay down the mortgage on a rental property you can refinance it and take cash out and still have the monthly rents coming in.

With home prices at an all time low and interest rates at the lowest they’ve been in years, it is the best time in years to invest in a rental property.

Here are some tips to finding your first investment property and take advantage of the opportunity of a lifetime.

First and foremost, partner with an experienced real estate agent who can help you locate promising properties.  It is important to look for a broker who will expect to do business with you again and again and will therefore be much more careful about what they recommend.

Determine the type of property which fits your investment strategy.  Decide if you will plan on being the landlord of the rental property or if you would like to flip houses instead.  If you are interested in being the landlord of the property, you should choose a home that is close to your primary residence.  Many options come to play if you will be the property manager – apartment buildings, commercial real estate or buying land to be developed.  If this is your first investment property, starting with a single residential house may be a perfect solution especially for this type of market.

For an investment property you will plan on renting out, location is key.  Choose a home in a high-rent or highly populated area, staying away from rural areas where fewer people are and there are a smaller pool of renters.  Homes with multiple bedrooms and bathrooms are important to families looking to rent.  If looking to rent to a family, making sure the home is in a good school district is also important.  The better the rental property as a package is to the renter, the more likely you are to please potential renters.

Before you start looking at rental properties, find out if you have enough assets to handle the ups and downs associated with investing.  You can speak with your lender or financial planner to see if it is feasible with your income to cover the few months out of the year there might be a vacancy.  It is a good idea to have about 6 months worth of mortgage payments saved up for the year.

Make sure you have connections to various professionals to make needed repairs and improvements the rental property may need.  Bottom line, become knowledgeable.  The more you know, they better you will be able to handle problems that may come your way.  There are many issues that may arise from your rental property from tenant problems to major leaks within the home.

Buying an investment property is much different than purchasing your primary residence.  When buying a rental property, put all emotions aside and think with a business-related attitude.  And remember, The Lawhead Team is a great partner in finding the perfect investment property for you.  Because Two Lawheads Are Better Than One!^TM

If you own rental properties, below is some important information regarding carbon monoxide detector devices installed in every “dwelling unit intended for human occupancy”.

SB 183, effective July 1, 2011,  is the California law requiring the installation of carbon monoxide detector devices.  The law enacts the Carbon Monoxide Poisoning Prevention Act of 2010, which requires a carbon monoxide device (battery or hard-wired) to be installed in a “dwelling unit intended for human occupancy.”  A violation is punishable by a maximum fine of $200 for each offense.  Owners of residential rental property must also comply with this law.  Tenants are responsible to notify the owner of an inoperable or deficient carbon monoxide device.  

Carbon monoxide is a gas produced whenever any fuel, such as gas, oil, kerosene, wood, or charcoal, is burned.  A person cannot see or smell carbon monoxide and at high levels carbon monoxide can kill a person in minutes.  Every year lives are lost as a result of this silent killer, many of which could have been prevented by the installation of a fully functioning carbon monoxide detector device.  The devices are available for purchase at numerous retail outlets such as Costco, Home Depot, Lowe’s and other home improvement and building supply stores, to name a few.  A device is required for each floor of living space, so if you live in a multiple-story home, you’ll need to purchase one device for each floor.