Owning residential rental properties can be a great way to generate income and accumulate wealth. However, if you don’t know your tax status you may be costing yourself thousands of dollars in the form of tax deductions. Specifically, a property owner’s tax status will determine whether (and to what extent) their rental property’s expenses can be deducted. As a result, determining whether a property owner’s tax status qualifies as an investor or business owner is really important.
As a general statement, a residential rental property owner can qualify as a “business owner” if they operate their rental property(s) to earn a profit and work with their rental properties regularly, systematically and continuously. Conversely, a rental property owner will only qualify as an “investor” when they don’t work on the rental ownership regularly, systematically and continuously. While the scope of this article is not to focus on the intricacies of tax status qualifications (talk to your tax advisor), it is intended to highlight the importance of tax planning when engaging in rental property investments. As Austin’s real estate investment market continues upward, now is the time for potential investors to reach out to not only their tax advisor but to their ACR Realty agent to see what investment opportunities are right for them.