Real estate investors have access to a variety of tax deductions that can help reduce their tax burden. These deductions can include mortgage interest, property taxes, operating expenses, depreciation, repairs, home office expenses, fees paid to brokers, furniture, fax machines, photocopiers, computers, telephone bills, insurance premiums, and more. To help you understand the most common tax deductions for real estate investors, we've outlined several activities that could reduce the amount owed to the IRS.Mortgage interest is one of the most important tax exemptions for investors. Deductions in this category may include interest on mortgage loan payments used to purchase or repair rental housing.
Landlords can also claim interest on credit cards used to purchase goods or services for the rental home.Depreciation is another popular tax relief for investors. This allows landlords to recover a portion of real estate costs over several years. However, landlords cannot fully deduct the cost of a single-family home, multi-family building, or other rental space in the year it was purchased.All premiums for rental insurance policies are tax-deductible. Some of the most common tax-deductible insurance policies include homeowner's liability insurance, fire, theft, or flood insurance.
In addition, if you have employees, landlords can deduct expenses related to health insurance or workers' compensation.If you drive 10,000 miles or more a year for your real estate business, you're likely to get the most tax benefit if you use the standard mileage deduction. However, you cannot deduct individual vehicle expenses such as gas, oil changes, car repairs and car insurance.Your income is everything you get from rents and royalties from the property minus deductible expenses. You can only deduct the mortgage interest and the repairs you make to restore the property to its original minimally functional state. You cannot deduct capital investments such as new buildings, upgrades or renovations.The government has developed special tax codes to encourage investors.
Two important real estate tax benefits are 1031 exchanges and opportunity zones. 1031 exchanges allow investors to defer capital gains taxes when they exchange one investment property for another of equal or greater value. Opportunity zones are designed to encourage investment in low-income communities by offering tax incentives.If you meet the requirements, landlords can deduct expenses related to office work, workshop space or other space in the house used for the rental business. To get the most out of these deductions it is advisable to consult a qualified financial professional.