Eight Real Estate Investment Tax Deductions

For many climbing on the property ladder is a dream which would ensure they have security in owning their home. For other proactive people however, real estate turns into a profitable business. Not only, there is a high demand on the rental and sales market for property, which can generate huge profit to owners, but there are also numerous tax benefits related to real estate rental income that you may not be familiar with. So let’s have a look at some of them.

Depreciation

The value of a property often depreciates with time and other economic changes. This means that as a landlord, you can get some of the money you paid as rental income tax back. Usually, this does not happen in the same financial year, but over a period of a few years. Nonetheless, it’s still a cheque of extra money you could put towards new investments, savings or just treating yourself with something you love.

Repairs

Repairs and general refurbishments are the most common costs any landlord would acquire. The good news is, those costs are fully deductible from your due tax in the same financial year. The even better news is that almost all repairs carried out in a property qualify for a deduction. The only thing you need to do is provide receipts or invoices for the Works.

Insurance

Wouldn’t it be fantastic if you could also deduct your landlord liability insurance premium? Well, guess what, you can! Not only that, but any other insurance related to your rental activity, such as theft and loss, fire or flood damages and so on.

Independent Contractors and Employees

If you’ve made arrangements for various services to be carried out in the property during the rental period, for example regular cleaning, you can write your contractor’s wages off as rental business expenses. The same also applies for employees’ salary, for instance, if you have a building manager in residence. The end result of applying this will be less tax you owe on your income as a landlord.

Travel Expenses 

This is very little known benefit of the real estate tax, but you can deduct your travel expenses, which relate to any activity of managing or servicing your property. For example, you can deduct travel to the place when you go there to resolve an issue, your tenant has complained about or to the store if you need to buy a specific part, needed for the repair of an appliance. Your travel expenses are deductible not only on local travel, but also on long distance. Therefore, in some cases you could also be able to deduct air fares if you live abroad or in a different state.

Damages and Theft Losses

This is never something you hope for, but it is useful to know that if your property suffers flood, fire or an earthquake, you can deduct part of the damage costs. Unfortunately, you would be able to deduct the sum in full only in extremely rare case. Generally, the amount of the deduction will depend on the size of the damage and whether you had appropriate insurance. If something valuable has been stolen from the property such as furniture, electric appliances or electronics that belong to you, their value can also be deducted from your real estate tax.

Legal Expenses 

As unfortunate as it is, landlords often have to use legal services to deal with irresponsible tenants or just to get their property back. The experience on its own is very stressful and not cheap by all means. In many cases, the tenants do not pay the legal expenses even if they’ve been evicted by a court order and all costs end up on the landlord’s bill. That being said, we bring some fresh air into a situation like this by letting you know as a real estate owner you can deduct your property manager, accountant or lawyer fees from your due tax. 

Interest

If you are still paying off a mortgage for the property you are renting out, it comes in handy to be aware that you can deduct your interest rate from your real estate income tax. Other interests, such as those on credit cards used for purchasing goods and services for the property or loans taken for repairs, are also fully deductible.

Fulton Abraham Sanchez, the founder of FAS CPA & Consultants of Miami, FL, is a Certified Public Accountant specialized in Tax Planning. You can email him to [email protected].

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