Real Estate Tax Tips – Maximize Your Real Estate Tax Deductions
There are plenty of good reasons to buy a home or invest in real estate, from long term appreciation trends to monthly rental income to tax deductions. And with taxes on the rise, anything you can deduct is certainly good news.
Here are some of the ways you can save money on taxes by investing in real estate, and keep the Tax Man at bay!
Tax Tip 1: Settlement Costs
One unfortunate reality of real estate is that it costs a lot of money up front, in the form of settlement costs. These costs range from mortgage fees (such as origination points and junk fees), to title fees (such as title review and settlement attorney fees), to appraisals, to recording fees and home owner insurance. Fortunately, most of these fees are tax deductible, so when you calculate your taxable income, be sure to bring your HUD-1 settlement statement to your accountant’s office.
Tax Tip 2: Mortage Interest
The interest you pay every month to your mortgage lender (which constitutes, incidentally, the majority of your mortgage payment) is 100% tax deductible. Subtract it all from your taxable income!
Tax Tip 3: Real Estate Taxes and Private Mortgage Insurance
In most cases, your mortgage payment includes taxes, and if you have high LTV (loan to value ratio) loan, it probably includes mandatory private mortgage insurance (PMI). These costs are tax deductible, so don’t let your accountant miss them!
Tax Tip 4: Repairs and Updates
In the case of investment properties, the money you spend on repairs to put the property in habitable condition is tax deductible, and serves both as an investment in your property and to reduce your taxes. The laws get complicated here though, so be sure to consult your accountant on this issue.
Tax Tip 5: Property Management Fees
Do you have a property management company manage your rental units? Their fees are tax deductible as well, so write them off!
Tax Tip 6: Depreciation
Regardless of what the market says about your rental property’s value, Uncle Sam is willing to view it as a depreciating asset, and you can deduct the depreciation! This gets complicated, so consult your accountant, but the gist of it is that the government sees the depreciation as a 27.5 year-long decay in the value of your rental property.
Tax Tip 7: Accounting Costs
You know that expensive accountant you’ve had to hire to figure all these tax issues out for you? Well, at least you can write off their bill as a tax deductible expense!
Tax law is extremely complicated, and even more so when it comes to real estate investment, so be sure to hire a good account to prepare your return. The investment, both in the real estate and the accountant, will help pay for itself with these excellent tax advantages, so take advantage of them, and don’t give up on real estate just yet!
Brian Gregory is a real estate investor and landlord, and enjoys the benefits of reduced taxes each year because of his real estate investments. He contributes to a number of online real estate publications including Ezine Articles and EZ Landlord Forms, a provider of rental forms and property management software.
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