One nice benefit of investing in real estate is the ability to save money on your taxes. Over time, investment property tax deduction can add up to some big money! When you are just pouring your money into other investments, such as stocks, you usually don’t have that option.
This article will cover a few of the most common tax deduction methods used by landlords. Your accountant should be able to help you with these deductions, along with finding a few more.
Managing an investment property is a business, right? The IRS agrees, which is why you’re allowed to deduct home office expenses.
For example, you can claim that a certain percentage of your home is used for business. You may also be able to claim utilities such as internet or a phone, if you use them a lot for your company’s needs.
Interest is Your Friend
…Well, not always, but it does help a bit as an investment property tax deduction.
What you probably already know is that you can claim the interest on the mortgage for your rental property. What you may not know is that you can also claim interest on credit cards or loans related to your business. For example, if you for work to be done on the home with a credit card, you can claim that interest.
Depreciation is a double-edged sword. On the one hand, it allows you to save a bit of money on your taxes each year, claiming that time has lowered the overall value of the house. The downside is if you decide to sell the home, you’ll pay a higher capital gains tax.
That said, you may not sell the home for a long time, if ever, so it makes sense to claim depreciation now and save on taxes now.
Another great investment property tax deduction is repairs. If you fix a few things around the house, keep track! You can deduct those expenses from your taxes.
This is huge, because it allows you to keep the property in great shape for a much lower overall cost. Just remember that repairs and improvements are two completely different things! You can’t spend $20,000 remodeling a bathroom and claim the whole thing as repairs.
Even though this expense probably won’t be huge, any little bit helps. The idea is that anytime you’re driving to or from the property- whether it’s to meet new tenants, pick up the rent check or perform repairs- you can claim it as a travel expense.
Be careful with this one, though. Make sure you can validate the trips for your tax deduction.
Casualty and Theft Losses
If something is stolen or damaged, you may be able to claim it on your taxes. You may not be able to claim the entire value, but this little investment property tax deduction can add up over time and help relieve the pain caused by such a loss.
Insurance is a critical part of protecting a home from natural disasters… along with “man-made” disasters. Luckily, the premiums you pay on your property’s insurance can be deducted.
Unless you’re extremely lucky, you’re going to have some periods where your property is vacant. The advertising costs you’ll pay to help get new tenants will hurt at the time, but you can claim these on your taxes. These fees are business expenses, hence why they count as an investment property tax deduction.
Want to Save More Money?
We highly recommend finding a professional accountant to help you around tax time. This is especially true once you buy an investment property, since it’s considered a business and requires its own bookkeeping.