When it comes to real estate and taxes, there are many factors that come into play when figuring out what can be deducted in April. Are you a single-dwelling homeowner owning their own home? Or are you a landlord maverick with multiple rental properties?
What are the Tax Deductions for Real Estate?
As the stakes raise with more income, you have more options at your disposal when it comes to tax deductions and lowering your taxable income. Here are a few of the most common real estate tax deductions.
1. Legal Services
Legal services is the name attached to any fees that are paid to those of a professional nature that help you run your real estate business. This could be fees from your accountant, your lawyer, companies running your real estate in your stead (property management), and so forth.
2. Contractors / Employees
You may need to hire out for help in cases of repair to the property or employees who help run the property. Whether these are employees or IC’s (Independent Contractors), these fees in the eyes of the IRS are considered business expenditures and can be deducted.
3. Pass-Through Deduction
This deduction was enacted by President Trump’s Tax Bill in 2017 which became law in 2018. This deduction can be applied to real estate owners who can deduct up to 20% of their net rental income. Another optional deduction is to deduct 2.5% of the initial cost of the rental property and 25% of the amount paid to employees in a tax year. This deduction is set to expire after the year 2025.
Landlords and property owners can depreciate a property for a set amount of years (usually straight-line depreciation) and use that set amount as a deduction every year. Usually, this number is on a sliding scale with the most depreciation occurring in the first five years, similar to other assets of depreciation.
5. Interest Paid
Property owners can claim interest paid if the interest was applied to anything property-related. This covers interest applied to mortgage payments and interest applied to credit card purchases that covered goods and services in relation to their properties.
6. Property Repairs
The cost of doing business is what’s termed here as normal wear and tear expenses are fully deductible. Catalog all the repairs that are made to the property over the calendar year and claim them when you file your taxes. Catastrophic repairs and major repairs are not covered under this deduction.
7. Business Travel
You can deduct your travel from your primary residence to your rental or real estate property, even if the property resides in another state. You can either claim the mileage at the standard IRS rate or you can claim the actual expenses which include fuel, repairs, and upkeep. You can also deduct air travel, meals, lodging, and other business expenses if you have to fly to your property in another city.
8. Home Office Expense
Homeowners can deduct a home office expense by using part of their home for work. You can use a desk in your bedroom to conduct your calls and other business-related matters and claim the deduction.
9. Insurance Premiums
Insurance premiums related to your properties are also deductible as well as health / workers compensation insurance for any employees you may have in your real estate business.
10. Personal Property Deduction
If you have any of your own personal property in any of your properties (furniture, appliances, etc.) they can be deducted as well.
CPA Firm for Real Estate Agents
Contact The MB Group for more information about tax deductions and real estate tax services. The MB Group has been serving the Dallas area since 2005.