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If you’ve considered purchasing real estate for rental purposes, you’ll have a lot of upfront costs. Fortunately, the tax code allows some of these costs to be considered startup expenses.
The cost of the property itself doesn’t count. Neither is furniture or other depreciable assets. However, startup expenses may include costs incurred to find a property and pre-opening costs, including advertising fees, office expenses, insurance, maintenance, and repair costs.
When you start your rental business, you can deduct the startup expenses, but according to the following rules:
- Up to $5,000 or your total startup expenses, whichever is less
- The remaining startup expenses are amortized over the 180 months starting the month you began the rental business.
Other rules to take note of, include:
- The cost of starting your business, such as creating a partnership or LLC, isn’t deductible as startup expenses
- The cost of expanding an existing business isn’t considered startup costs
But there’s a catch. If you buy property in a different area from where you’re already a landlord, you can start a new rental business and deduct the startup expenses.
However, no matter where you invest, the only way to deduct the startup expenses is if you actively participate in the real estate investment, not if you are simply an investor.
Have questions about how this all works? Contact me today, and let me help!
