The deadline to file taxes is right around the corner, and as a residential real estate investor, this is a big opportunity for you to save money. Yep, SAVE money. Real estate offers the most in terms of tax savings – more than almost any other type of investment. But in order to save, you must know where you can deduct. Check out these 10 deductions you can take with residential investment properties.
- Mortgage interest – If you’ve financed your rental property, you’ll receive a Form 1098 from the government each year. This form shows how much interest you paid on the loan for that year. Guess what? That amount is deductible, and it’s likely a sizeable chunk of change.
- Insurance – The premiums you pay throughout the year for insurance for your property are also deductible. This includes almost any type of property-related insurance you have, whether it’s fire, flood, or landlord liability.
- Property tax – It sounds kind of funny to be able to deduct taxes when you’re filing your taxes, but hey, that’s how it works. Whatever you’re paying each year in property taxes on your unit is completely deductible.
- Depreciation – Every year, your property’s value depreciates. “But wait a minute,” you say. “I thought my property was appreciating!” Well, depending on the market you’re in, it may be – but only in the eyes of potential buyers. In the eyes of Uncle Sam, though, depreciation is different. It works like this: your home (not the land it’s on, though) is worth a certain amount. Over time, as age and wear and tear take their toll, that value declines. That’s called depreciation. The IRS allows you to deduct a portion of the purchase price each year for depreciation, even if your property doesn’t show signs of wear and tear because you keep it in great shape.
- Repairs – Repairs on your rental property are also deductible. This includes things like fixing broken windows, a leaking roof, or repainting. Be careful not to confuse repairs with home improvements though, as improvements are NOT tax deductible. Repairs must be necessary and at a reasonable-cost, and not something done simply to add value to a property.
- Employees/contractors – If you have employees that work for you, their wages are deductible as a business expense. Same goes for independent contractors like carpenters or painters.
- Travel expenses – Local and long-distance travel expenses can also be deducted. This includes driving to your rental property to deal with a tenant issue or maintenance problem, or even visiting a different city to look for new investment opportunities. Travel costs incurred as a result of home improvements, however, are not deductible. You also must be careful to maintain records and receipts of travel expenses, as the IRS will scrutinize these more carefully – especially overnight travel.
- Home office – Do you have home office space for your real estate business? If so, there is a tax benefit to be found. There are certain minimum requirements that must be met, but the space you use to work along with the equipment and supplies in it may be tax deductible.
- Professional services – Professional service fees, like property management, financial advising, accounting, and legal, can all be deducted as well – so long as you’re using them for your rental property. You can’t ask your lawyer to handle a personal matter and then write it off as a rental property-related deduction.
- Casualty losses – If you suffer losses to your rental property or some of its contents, you are able to deduct these at tax time. Fire, flood, and theft are just a few examples where loss could be incurred.
Don’t miss out on the savings that can be found through deductions. Check out the IRS’s website for a full list of rental property deductions, or talk to your accountant to be sure you’re saving everywhere you can.