Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
Hello
I am trying to understand taxes on a single family investment. If I have a property where in the first year I have the following cash outflows, what expenses would be tax deductible and what percentage of those expenses would I be able to use to reduce taxes?
Year one assumptions
1) property taxes - 2250.00
2) Insurance - 500.00
3) Maintenance - 500.00
4) P&I - 9580.00
Total - 12830.00
Total 1 year revenue- 12000.00
Tax deductions ( can maintenance and insurance be added to tax deductions ? )
1) property taxes - 2250.00
2) interest - 8361.00 ( is there a limit to how much interest can bed used a tax deduction, if I had multiple leveraged investments? )
Total deductions - 10611.00
Tax savings? -----
What percentage of the eligible deductions could I use for tax deductions? How is this rate determined?
Rich,
Everything besides the principal payment is a deductible business expense (Unless the repairs are a capital improvement which they are probably not). You will also have depreciation which is significant.
Depreciation on a SFR is over 27.5 years which comes out to 3.6% per anum. The land value is not depreciable. CapEx--in other words replacement of major things is not such as roofs, flooring, etc usually must be expensed over time but any repairs or other expenses up to $2500 is a write off for the year in which done. So, a paint job costing less than $2500 can be written off the year done. Spend $4K on painting and it must be depreciated. Your CPA can give you the schedule of time because paint may be x years but a new roof may be y years.
Awesome. Okay so it sounds like some expenses if they are capital improvements can be depreciated and other expenses under a certain threshold can be tax deductible for that year.
When I add up all the tax deductible items for that year what percentage of them can be used? How is percentage determined?