Hello, and good afternoon Jimnor2016!
You asked if you will pay less taxes if you purchase a rental property.
This really depends, as the tax laws regarding rental properties vary significantly based on factors such as location, type of property, your specific situation and whether or not you have a net profit or loss.
Rental income is considered taxable income but you are allowed to reduce your rental income by subtracting expenses that you incur to get your property ready to rent, and then to maintain it as a rental.
In general, to calculate the profit or loss on a rental property, you would report your total rental income and expenses on a form Schedule E, Supplemental Income and Loss. This form will then ultimately be used, to determine whether you have a net profit or loss for tax purposes.
A net loss on a rental property can be used to offset other taxable income you have during the tax year, thereby reducing your overall tax liability. This is because the IRS allows rental property owners to deduct certain operating expenses associated with their rental property, such as property taxes, mortgage interest, maintenance and repairs, insurance, and depreciation, from their rental income.
If the total expenses associated with your rental property exceed the rental income you received during the year, you will have a net operating loss (NOL) for your rental property. This NOL can be used to offset other taxable income you have, such as wages, self-employment income, or even investment income, by up to $25,000 per year if you meet certain eligibility requirements. However, it's important to note that there are limitations and rules on how much of the NOL you can use to offset other income, depending on your specific situation.
For more information on this topic please click on these links:
Please feel free to reach backout with any additional questions or concerns you might have!
Have a great rest of your day!
Terri Lynn, EA
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