Are you taking advantage of your investment property tax deductions? Unless you have an accountant that specializes in this field, you’re probably missing out on a few. Here are a few things to keep in mind when doing your taxes to make sure you get the best tax refund possible.
Mortgage Interest- Your Biggest Investment Property Tax Deduction
Unless you’ve already paid down most of the mortgage, you’re likely paying thousands of dollars every year in interest, right? That’s hard to swallow, even if you’re making a positive ROI on your property.
The good news is not all of that interest is a loss. You can deduct the amount paid on your taxes, which can lead to some massive savings. Especially if you own multiple homes!
Here’s something else you may not realize- you may be able to deduct interest paid on a business credit card used for home maintenance or services. And considering the high interest rates on most credit cards, this is a huge benefit.
Depreciation- Your Second Largest Property Tax Deduction
When a business owns a physical asset, it depreciates over time. That is, the book value decreases every year because the asset gets outdated, worn out. etc.
You can depreciate the value of your rental property because it’s a physical asset, right? Even though you’ll need to consider the home’s depreciated value if you sell it (as it is considered in the capital gains equation), the annual depreciation will help cut back on your payouts to Uncle Sam.
Travel (Short and Long Distance)
You may be able to deduct some of the expenses traveling to/from your property. The most common example is reporting the number of miles put on your car, and you’ll save $X per mile on your taxes.
But if you have to travel a long distance and need to use airfare, hotels, etc. then that can be deducted as well. You just need to be able to prove that it was for a business trip.
This is one of those tax deductions for landlords many people don’t know about. You can usually deduct your entire insurance premium on the home. This includes insurance for fire, flood, or theft insurance.
If you have several employees that perform your maintenance and service tasks, you can also deduct the premiums paid for their workers compensation insurance.
Professional Service Costs
You probably pay a number of different services to run your business as a landlord. Plumbers, roofers, painters, lawyers, property managers- these are all crucial services that (unfortunately) take away from your bottom line.
The good news is Uncle Sam realizes this, and allows for deductions based on these costs as well.
Home Workspace as an Investment Property Tax Deduction
If you have an office at home or something like a workshop where you work on things for your rental properties, this can be another tax deduction. This is based on the percentage of how much of your personal residence is used for your business.
Note that this applies to utilities as well as your annual mortgage/rent payments.