Whether you started investing in real estate to make extra money every month, or to support your long-term financial goals, it’s important to understand how tax deductions factor into the real return on investment you can expect to collect.
“Those in the know understand they can offset many of the expenses associated with real estate investing through tax deductions,” wrote Bigger Pockets. “From mortgage interest to repairs, there are many accepted deductions for savvy property owners.”
Real Estate Investing Basics – 5 High Value Tax Deductions
Here are five of the top tax deductions everyone interested in real estate investment should know about:
1. Interest Paid on Mortgage
If you are unable to purchase the property outright will have a mortgage on the property, make sure to take full advantage on all tax write-offs available to you under the law. This includes deducting the interest paid on the mortgage loan whenever you file your annual taxes. Also, keep in mind that if you pay the utilities for any rental properties, you can deduct those costs as well.
Depending on where you buy, property depreciation may or may not be a problem, but if you invest in real estate that goes down in value, keep in mind that there are two types of property depreciation that real estate investors can deduct on their taxes. The first is depreciation of the property* itself, and the second is the depreciation of any major purchases you might have made to run your real estate investing business, including computers and vehicles.
*Be sure to check the latest rules and ask about depreciation recapture taxes that may be due whenever you sell.
3. Business Travel
Take a moment to consider the seriousness of your real estate investment business aspirations – are you investing in real estate rentals via a turnkey provider for extra income and strong ROI, or are you working to build your own real estate empire with dreams of becoming a major developer? Either way, don’t forget that some forms of travel are permitted as a tax deduction and others could be more of a stretch to prove.
“It would be considered ordinary and necessary to deduct travel to and from properties,” wrote Bigger Pockets.
Property maintenance, improvements and repairs are also tax-deductible expenses for real estate investors, mainly because they are also classified as necessary expenditures. A major benefit is that even totally unnecessary improvements are tax-deductible, so don’t be afraid to redecorate that vacation home rental, or remodel that condo rental property so you can demand higher rents!
5. Legal Expenses
It’s also possible to deduct any legal expenses that you rack up during the process of buying or managing investment properties. This includes much more than just drawing up contracts, from navigating the eviction process to expert consultations that can help you find the best real estate investment companies to work with and learn how Self-Directed IRA real estate rules can help make ownership a reality sooner than you might think.
Do you have any questions about how to maximize the benefit from tax deductions for real estate investors? Contact us today or post them in the comments and we’ll be happy to reply!
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