It is that time of the year again and hopefully you have your taxes done early like me. One day early to be exact this year, but hey, that’s still early! Depending on what has transpired in your life since the start of 2017, there are numerous tax ramifications that will ultimately determine what your refund or check to the government will be this year. Personally, I have been taking advantage of not only the compounding power of real estate investing but also numerous tax benefits along the way. There are several real estate investment strategies in the tax code right now that could help you out in a big way today and down the road. Take a look at the following investment property tax deductions that could save you a lot of money come tax time.
- Interest – This is a large deduction for those who own real estate and have loans on their property. Basically, the interest on your loan and any other credit cards or lines of credit used in your investment business is tax deductible.
- Depreciation – This is one of the most valuable tax deductions available to real estate investors. It allows you to deduct the value of your asset (not including the value of the land) over 27.5 years. Each year you get to take a portion and this can reduce the profit you had for the year. It can also potentially result in a loss that can be used to offset other income you may have. For example, if you purchase an investment property for $350,000 and the land is worth $100,000 and depreciate it over 27.5 ($350,000-$100,000=$250,000/27.5) years, you are allowed to take an annual depreciation deduction of $9,090.
- Taxes – Rental property taxes are deductible.
- Maintenance and Repairs – This can be another big deduction for investors. Generally, the more maintenance and repairs your investments need, the bigger the tax deduction. As a general rule, things that need to be repaired to maintain functional living space are fully deductible at the time of repair. If larger value-added improvements such as a new roof or HVAC are completed, then these items are expensed over the economic life of the asset, which ranges depending on the improvement and is spelled out in the tax code
- Travel – Local travel to and from your investment property is deductible. Also, if you travel out of town or across the country to work on or check in on your property, these expenses can also be deducted
- Property Management – The cost associated with hiring out the management of your property is tax deductible.
- Insurance – Any insurance policies that you carry for your property is tax deductible.
These are the biggest and most common tax deduction that real estate investors can take advantage of. There are some really incredible long term tax strategies that can go way above and beyond these basic principles. The use of a 1031 exchange to sell and buy investment property is a great way to defer your capital gains taxes. Transferring property to your heirs can also be done in a way that they can potentially avoid most if not all of the capital gains burden. There was a major overhaul to the tax code in 2017 and I am not a CPA, so if you are wanting to learn more about your personal situation and the advantages of owning rental property, you should consult your tax accountant for more advice. You can also find a lot of valuable information on the IRS website and investment sites such as Biggerpockets.
If and when the time comes for you to explore purchasing investment property, please know that the Moving Chico Team has you covered. All of the current agents on the team are investor friendly and we all personally own and manage real estate investments. It makes a huge difference who you work with when you are looking to buy your first or tenth investment property. Having a team that understands the ins and outs is an invaluable asset when taking the leap into investment property ownership. I wish you all a prosperous 2018 and of course reach out to us at any time if you want to learn more.