The values of real estate have really taken a nosedive and the market is now replete with foreclosures. These realities are now prompting would-be property sellers to consider the leasing option as opposed to selling.
Quite frequently, such landlords miss out on substantial tax deductions that have been set aside for investment properties such as which they own. These deductions if taken advantage of can help them make tax savings in the tune of thousands of dollars. There are a number of real estate tax write-offs that you can take advantage of to save money though some of these are the preserve of landlords and real estate investors. Read on:
1Tax Deductions for Homeowners and Landlords: Mortgage Interest
The first and most basic real estate tax write-off that is really widely understood is mortgage interest. Not only can it be written off by landlords and real estate investors but homeowners can do so as well. Mortgage interest can accumulate to thousands of dollars annually and thus it is a deduction that should not be overlooked for whatever reason.
2Tax Deductions for Homeowners and Landlords: Hazard Insurance
Hazard insurance is a tax write-off that is especially appropriate for the would-be property sellers who’ve been converted into unwilling landlords courtesy of the economic downturn. While homeowner’s insurance cannot be written off by homeowners, it is possible for real estate investors and landlords to do this by indicating their hazard insurance premiums as deductible expenses. Having done so, it is prudent to remember the need to save a copy of the insurance premium invoice for tax compilation purposes.
3Tax Deductions for Homeowners and Landlords: Property Taxes
Every year real estate property taxes should be indicated as deductible expenses. While this may sound rather obvious, the fact of the matter is that lots of property owners somehow forget to do so and this slight oversight effectively compels them to pay these taxes twice.
4Tax Deductions for Homeowners and Landlords: Depreciation of Real Estate Property
The manner in which real estate depreciation is calculated is not clearly understood by many property owners yet these figures add up to quite a significant sum of money annually. To explain this in simple terms, the government permits real estate investors to incur a ‘paper loss’ of property value as informed by a mathematical model whose assumption is that the value of properties will gradually decline to $0 over a period of 27.5 years from the time of their purchase. This implies that a depreciation loss of 2/55 the purchase value can be deducted for the first 27 years of property ownership. However, as these calculations can get pretty complicated, it is advisable to seek the professional assistance of an accountant.
5Tax Deductions for Homeowners and Landlords: Legal Counsel and Landlord Forms
The majority of the legal bills for investment properties, real estate legal contracts and landlord forms costs included are tax deductible. There is an important exception though with reference to eviction costs – these are generally considered non-deductible. As above, it may be worth consulting with your accountant to establish which expenses are deductible and those which aren’t.
6Tax Deductions for Homeowners and Landlords: The Costs of Property Management
In the event that you as a landlord or real estate investor have hired the services of a property management firm to manage matters involving your properties, tenants and leases, it is worth remembering that their expenses are tax-deductible. For this reason you should always sum up their fees and then write them off. Note that if the sum of fees was in excess of $600 you will owe the property manager a 1099.
7Tax Deductions for Homeowners and Landlords: Private Mortgage Insurance
If the amount of mortgage relative to the value of your property is high, as is currently the case with the lot of us, it is most likely that alongside your monthly mortgage payment you are paying an extra charge to cater for private mortgage insurance. Paying these amounts is quite annoying but the fact that they can be subtracted from your taxable income is definitely a welcome respite.
8Tax Deductions for Homeowners and Landlords: Repairs and Maintenance
Just like is the case for hazard insurance, homeowners cannot write off their home improvement costs but real estate investors and landlords can. There are however some exceptions to this rule in that general repairs which are necessary for safety and habitability are tax-deductible. Again, this is a consideration that requires the advice of your accountant.
9Tax Deductions for Homeowners and Landlords: Tenant Screening and Advertising Costs
Landlords whose properties are vacant can write off the expenses involved with filling the same. Some of these costs include the advertisement of the rental properties, pulling of credit reports, tenant screening via making criminal background verifications, and so on.
10Tax Deductions for Homeowners and Landlords: Settlement Costs
Persons who are currently purchasing investment properties are quite fortunate in that a couple of the settlement expenses they’ll incur are deductible, including government recordation expenses and mortgage lender fees. However, since not each settlement charge is given the tax-deductible status, the onus is on you to send your accountant a copy of your HUD-1 settlement statement so that he or she can peruse through it and thus identify all the deductible costs.
A noteworthy point is that your accountant’s bill for payment is also deductible albeit on the following year’s tax return. As such you should indicate the bill from last year as part of this year’s deductions.
