Investment Property Tax Deductions Sweeten the Deal.
Unlike some investments such as stocks and bonds that are subject to taxes above and beyond simple income tax; investing in real estate offers some unique tax benefits for landlords. Keep in mind tax benefits alone are not the only reason to invest in real estate. Nevertheless potential real estate investors need to understand the importance tax benefits can reap for landlords.
Before I go into some of the top rental property tax deductions, let me first point out a very important disclaimer: Always seek professional advice from an accounting professional about all ramification of rental property ownership.
Here are some of the top tax benefits to look forward to for investment property owners.
1. Depreciation. Depreciation is one of my favorites tax deductions for an obvious reason. You don’t have to spend any money to receive this tax benefit, and for that reasons, depreciation is very much like a free gift of cash off of your tax bill.
2. Repairs. Generally speaking, for the repairs made in any given year, they are a deductible item. Keep in mind minor repairs such as plumbing, electrical, air/heating, or carpentry are most likely deductible, but any repairs that might get classified as “improvements” might be depreciated rather than deducted.
3. Interest. Typically speaking, mortgage interest is one of the largest deductions for landlords. And don't forget about any home improvement loans, as the interest on those types can also be deducted, too.
4. Insurance. Lenders will require you to insure your property. And the good news is – insurance premiums are a deductible item.
5. Marketing. When advertising your property to potential renters, whether it be on a website, in a magazine or local newspaper, the money you spend is a deductible item.
6. Property tax. As a property owner, you have to pay property taxes, but the county, city and school taxes are deductible.
7. Accounting, legal and management services. When a property owner contracts the services of specialists such as an accountant, legal counsel, and or management company, Uncle Sam will pay a share of the expense through a deduction.
Here’s the bottom line when it comes to your investment property. Tax breaks do add up, and at the end of the day – they do make owning investment property even more profitable. I’ve just listed seven rental property tax deductions but keep in mind the list of tax benefits go beyond the seven I just listed. As I mentioned, for investment property owners to take advantage of many beneficial tax deductions, it is very important to work closely with a trusted tax preparer.