It is about that time again and if you invested in real estate I have compiled a short checklist of deductions that you should ask your tax professional about to make sure you maximize your deductions.
Here are ten deductions your tax advisor should be accounting for:
- Interest. This is one of the most important deductions for real estate investors. If you’re using some kind of loan to attain properties, the interest you pay every year is a write-off.
- Depreciation. The current tax code allows you to claim depreciation on each property for 27.5 years. Claiming depreciation is a powerful tool for mitigating your overall tax burden. For more on depreciation and how to calculate it, see this blog post!
- Repairs. We do repairs on all of our properties in order to make them into great homes for our tenants. And luckily these repairs are deductible in that tax year. Win-win!
- Local travel. If you live within driving distance of your rental properties, travel expenses count as business expenses. Keep track of your mileage, and receipts from renting vehicles.
- Long-distance travel. As you know, I’m a big proponent of purchasing properties across state lines. Airfare, hotel stays, and team meetings are all business expenses, and therefore are eligible write offs.
- Home office. If you have an office in your home used solely for business purposes, you can claim part of your home as a business expense. There are strict stipulations surrounding this one—your office must have a door, and it must be exclusively an office. A guest bedroom/office or home gym/office does not qualify.
- Employees. The whole purpose of the tax law is to encourage businesses to stimulate the economy. If you hire contractors or have people on staff to make your business run smoothly, you can write it off! The government wants to incentivize you to continue creating jobs.
- Casualty losses. This isn’t something you want to plan for, but in the event of a disaster, such as a fire or a flood, the IRS allows you to write a portion off as a loss.
- Insurance. Most investors think about building insurance costs into their expenses, but forget that insurance costs are a write off at the end of the year! Again, it’s a business expense, and the government loves to incentivize stimulating the economy!
- Professional or legal services. Any fees you pay to a property management company, lawyer, or other professional can be written off as business expenses.