House hacking is one of the most powerful real estate investing strategies there is.
However, it seems most people only look at it for reducing their living costs (rent/mortgage).
While that is one of the main benefits, it’s certainly not the only one. Some people call it landlording with training wheels, others call it Landlording Lite. Whatever you call it, the point is that house hacking often allows you to start learning the ropes of being a landlord and owning rental properties as easy as possible. There are numerous other benefits of house hacking that are quite widely known, so we won’t touch on them here.
However, there is one piece of house hacking that I think is often overlooked.
Taxes.
Please remember, I am not a CPA, nor am I a certified Tax Professional in any way. None of this is specific tax advice. If you have specific tax questions, please consult a tax advisor (I know a great one — if you’re looking for a recommendation, just let me know)
When I first started house hacking, I certainly didn’t realize this. I’m on my third one now, so I know the ropes a bit better, but it didn’t start out that way.
What most people are missing is that if you own a duplex, triplex, or fourplex, as a house hack, the units you are not living in, but are renting out, are often treated as a traditional rental unit from a tax perspective.
If you have repairs and maintenance on the unit(s) you’re not living in, it can potentially be tax-deductible.
Where this becomes powerful, at least for me, is through things that are somewhat “shared”.
Let’s take landscaping as an example.
I think it’s safe to say that most people want the outside of their home to look nice. As someone who lives in the property, we’d likely pay for this regardless of whether or not we had to for rental purposes. However, using a duplex as an example, half of the cost of landscaping is sometimes tax-deductible, since half is for one unit that is a rental.
For me, recently, I had to buy a pressure washer to clean the siding on the outside of the building. Since I live in a duplex and half the building that was cleaned was for a rental unit, half of the cost of the pressure washer is tax-deductible for me. I needed a lawnmower to mow the lawn — half of it is also a tax write-off. If I decide I don’t want to mow the lawn myself anymore and I hire someone to do it, half of that cost should be a tax write-off. Snowblower? Half the cost is a tax write-off.
I think you see the point. I am able to get a tax write-off for these items, AND have them for my own personal use if needed, as long as it is half used for the rental unit.
The key takeaway from this newsletter is to remember that your rental units should be treated as a business, even if they are part of your house hack. Take advantage of the opportunities that presents.
All the best,
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