There are numerous tax benefits to investing in Ohio real estate, and these benefits are a big reason many investors choose to diversify their portfolio by purchasing single- or multi-family rental properties.
Below we’ll discuss several tax implications and benefits of investing in real estate in Columbus. As always, to get the best advice for your situation, be sure to speak with a tax accountant.
Tax Benefits of Investing in Ohio Real Estate
- Tax deductions – Investment property owners in Ohio can write off many expenses related to the operation, management, and maintenance of their property. Tax deductions include write-offs for property taxes and insurance, mortgage interest, property management fees, and property maintenance expenses, among others. Business investors can also take advantage of deductions for things like office space, advertising expenses, and other qualified operational expenditures related to their investment property.
- Depreciation deduction – This tax benefit allows owners to account for depreciation, or the asset’s lost value due to “wear and tear,” as an expense on their taxes. The allowed deduction amount is determined by the property’s market value, recovery period, and depreciation method used.
- Pass-through deduction – Also known as the Qualified Business Income (QBI) deduction, this pass-through deduction allows qualifying parties to receive a deduction on their personal taxes of up to 20 percent of their net rental income. This income deduction is part of the Tax Cuts and Jobs Act of 2017 and is scheduled to expire in 2025.
- Ohio Opportunity Zones Tax Credit – Ohio offers investors an opportunity to reinvest capital gains into opportunity zones as a way to encourage investment in distressed neighborhoods (and also save money on taxes). One such program is the Ohio Community Reinvestment Area program which allows property owners to receive tax incentives for investing in real property improvements.
- Self-Employment FICA tax – The money self-employed rental property owners receive isn’t classified as earned income per the Federal Insurance Contributions Act (FICA), which means they are not responsible for the 15.3 percent they would otherwise pay toward Social Security and Medicare.
These and other tax implications, including 1031 exchanges and capital gains taxes, should be heavily considered as part of your overall investment strategy. Work with a professional accountant to ensure you are maximizing your tax benefits, and if you have questions specific to the Columbus-area rental market, please come talk to us at RL Property Management.