Taxes on Real Estate Investments

Each year mid April approaches and it’s time to do your taxes on real estate investments.  Be sure you are taking all the allowable deductions so you don’t over pay.

You are usually better off having a professional CPA file your taxes when owning rental properties, but that is just my personal opinion.  I’m not an accountant of CPA and value the expertise my accountant provides when it comes to my real estate investments.

However, you should still be aware of the deductions you can take to ensure nothing falls through the cracks and you are maximizing them the best you can.

Here are a few key deductions to keep an eye out for:

Once you own a rental property, you essence own a business and thus it can be taxed that way.  This means you can take deductions such as:

  • Interest:  When using financing to acquire rental properties you will pay interest on those loans.  Usually that interest is deductible.
  • Closing Costs: Many closing costs can be written off.
  • Mileage:  Yep, all that driving back and forth to the property during renovation or showing it, deductible.
  • Services:  Do you use something like property management?  If so, that expense is a write off.
  • Depreciation:  This is a perk of rental properties, you can to depreciate the building cost, thus lowering your taxable income on the property each year.

Depreciation – a few more details…

When it comes to depreciation on a rental property the IRS lets us depreciate the value of the building over a 27.5 year span.  Notice I said the building, not the land.  Land does not depreciate in the eyes of the IRS as it does not suffer from wear and tear and receive capital improvements, by their rules.

A simple example is if you purchase a property valued at $100,000, then you take $100,000 divided by 27.5 to get $3,636.  That amount can be deducted against the income the property produced for the year, thus lowering your tax due.

These are just a few things to check your accountant is factoring in and you are providing sufficient information on.  Again, I am by no means a CPA which is why I use one to prepare my tax statements to ensure nothing is missed.

If you enjoy my rental property investing tips, then you will love the book:

ScaredyCatGuide – Investing in Rental Properties

I walk you step-by-step through finding, buying and renting out a rental property.  The book is your personal mentor!

Be sure to use the property calculator so you can run the numbers and buy right!

Leave a Reply

Your email address will not be published. Required fields are marked *