Real Estate Taxes: 10 Tips For Investors
If you invest in properties, you probably need to pay substantial real estate taxes and numerous other expenses.
Fortunately, a variety of federal tax deductions allow you to recover some of these costs by sending fewer dollars to the IRS.
1.The government does not permit investors to deduct all real estate closing expenses; individual costs may or may not reduce taxes on capital gains.
You can write off fees associated with a property's title.
The same goes for any related legal costs.
2.If you live in half of a duplex and use the remaining portion for investment purposes, the IRS will treat each half differently when you sell the building.
In most cases, the capital gains tax only applies to 50 percent of the total money earned.
3.When you resell a property and need to pay a real estate agent's commission, you can subtract this expense from capital gains.
However, it will not reduce the amount you owe if the sale is already exempt from capital gains tax.
4.Investors generally pay fewer taxes on real estate sales when they wait more than 12 months before reselling properties.
This may cut the tax rate by as much as 20 percent.
Nevertheless, you might need to pay a higher rate if you buy and sell real estate as an occupation.
5.If you rent buildings to tenants while you own them, you probably qualify to deduct interest on a mortgage and/or home improvement loan.
The interest on mortgages of unoccupied land qualifies for a deduction if you have investment income.
6.As a landlord, you can deduct travel costs related to repairing buildings and serving tenants.
This deduction does not apply to travel associated with optional enhancements, such as adding a laundry room or central air conditioning.
7.You only need to claim a security deposit as income if you keep it.
This may prove necessary when a renter violates the leasing agreement, damages the building or uses a deposit to pay the last month's rental fee.
8.Many rental building expenses remain tax-deductible.
They include property manager fees and several types of insurance premiums.
If a professional adviser helps you make decisions about property investments, this expert's fees are usually deductible.
9.As long as the costs are not exorbitant, the IRS gives landlords the ability to completely subtract all necessary repairs from their income.
For instance, you could deduct the repair bill associated with a broken faucet or a malfunctioning refrigerator.
10.When you resell a building that needs repair, you may choose to specify repair expenses as one of the closing costs.
This makes it possible to subtract them from rental earnings.
On the other hand, you need to treat improvement expenditures as a portion of an investment property's cost.
This reduces the capital gains tax.
Various exceptions apply to many of these rules and deductions; be sure to read the instructions carefully.
Real estate investors face extra complexities when filing federal returns.
Our tax professionals can help you maximize deductions and ensure full compliance with all IRS rules.