Need a tax deduction?
Updated: Feb 13
As we quickly approach tax season I wanted to remind everyone what a powerful financial tool investment real estate can be as it relates to your wealth. Not only do you earn additional income from the rental property as it rents throughout the year you also gain a nice tax deduction to offset the income earned.
The are many expenses associated with purchasing and maintaining an invesment property that create tax advantages for owners. You will need to consult with a Real Estate Tax attorney to understand the full implecations of your investment as it relates to you but below are just some of the items that can be tax deducatble if you meet the occupancy requirements:
Depreciation is a rental property tax deduction for the hypothetical wear and tear on your building as if it were an expense. Note it does not cover the land portion of your investment. Even though you may not be encountering costs to cover actual maintenance expenses, accounting principles allow you to take advantage of the eventual costs through depreciation
Determing what the depreciation figure is vital, and you should turn to your certified public account (CPA) or tax professional for assistance. Generally, you can depreciate your rental property value minus the cost of land evenly over 27.5 years, known as straight-line depreciation.
Mortgage Interest Payments
Mortgage interest payment, points and loan origination fees may all be deductable. Your 1099 statement from your mortgage lender should provide the correct value to claim year over year.
Property taxes paid either at closing or annually by you mortagge lender if you loan is escrowed or persnally if non-escrowed are also tax deducable. This information is also seen on the 1099 statement obtained by your mortgage lender.
Any form of insurance is considered an expense, hence tax deductible for the rental building. This includes basic hazard insurance and special perils insurance like flood or hurricane coverage as well as liability insurance.
Typical types include:
Liability insurance, Hazard and fire insurance, Sewer backup insurance which can be added to your hazard policy. Flood insurance which covers water coming from any source outside the home and is required by most mortgage companies.
Basic utilities such as Heating bills, electricity, gas, water, sewer, television and phone are all deducable expenses so keep track of these throughout the year.
Maintenance & Repair
Costs to maintain, care for, and improve the property are deductible. However, there is a difference between how things like cleaning, maintenance, and repair are deducted vs how improvements are handled.
Whether you are upgrading your flooring, improving your appliances, power washing or whatever the task to impove the property the expenses to do such can be written off.
Needed between rentals however the costs to clan it up.......deducable.
Homeowners Association Dues
Not applicable for all investment propertys however if you have a requirment through covenents to pay accosiation dues these are deducable.
This is just to name a few. Call me to obtain a full list and to fully understand the tax valueof an investment property!!