Can you feel the tension? If not, your accountant definitely can. It’s tax season.
The deadline to file last year’s taxes is just days away. Many investors love turnkey rental properties because they offer a hands-free, cash flowing investment. But did you know there are fantastic tax advantages to owning rental properties? In fact, real estate offers the most tax advantages over almost any other investment. But, just like any other tax deduction, you have to know what to track and what to claim. Here is a list of some of the great tax advantages that real estate investing offers.
- Insurance. Any premiums you pay throughout the year are tax deductible. Any type of property related insurance – fire, flood, liability, etc – is deductible.
- Property taxes. Yes. You can deduct taxes on your taxes. Any property tax you paid throughout the year on your investment property is deductible.
- Depreciation. Each year there is a set amount of depreciation you can deduct on your taxes. Even though in almost all circumstances your property value is actually increasing, according to the IRS, you can claim a certain amount of depreciation each year. This accounts for wear and tear on the property even if you do keep in excellent condition.
- Repairs. Any repair made to property – water heater, roof, broken windows – are deductible. However, do not confuse this with improvement. Repairs are necessities that need to be done to the property. If you are replacing your ugly cabinets with shiny new ones, that may not be deductible as it’s not a repair.
- Professional fees. If you use an attorney, property management, financial advisor, accountant or another person in regards to your rental property, you can deduct those expenses.
- Employees or contractors. Any wages associated with these individuals is tax deductible. If you hire someone to do repairs on the home, be sure to track not only the supplies but the expense for the services.
- Travel expenses. This can get a bit sticky. If you’re traveling to do repairs on your property, that is tax deductible. If you’re traveling to do improvements on the property, that is not tax deductible. If you’re traveling to a new city to explore new investment opportunities, that is tax deductible. Be careful what you claim here as the IRS can be very picky when it comes to travel expense deductions.
- Office space. Whether you have a home office or another office location, those expenses can be deducted. Including supplies for the office, equipment, furniture and more.
- Casualty Losses. If you have any losses to your property, or some of its contents, it may be tax deductible. Theft, flood or fire are examples of where such a loss may occur.
- Mortgage Interest. If you have financed your property, you will receive a notice from the goverment showing how much interest you’ve paid on that property in a year. That amount is completely deductible.
Quite a bit of savings, right? It can be HUGE and make a big impact on your returns. As always, be sure to consult a CPA or your personal financial advisor on what deductions you’re eligible to claim. They are your best resource. For a full list, visit the IRS’s website.