Real estate businesses hold undeniably lucrative potential, but did you know that a surprising number of landlords make less money than they expect in their first years? Overpaying on taxes is a particularly common problem faced by landlords today, and it could result in sizable increases in their outgoings at key times of the year.
Tax deductions can help with this, but many landlords simply don’t understand the extent of savings possible here. Whether you’re just getting started in the industry or you’re keen to save money on your real estate assets in the coming tax year, keep on reading to find out about the three tax deductions that could be relevant to your rental properties.
# 1 – Interest
Interest is perhaps the most lucrative landlord tax deduction, and it’s relevant in more ways than many landlords realize. The most obvious application of this deduction comes from interest on your rental property mortgage itself, which is fully deductible.
You can also deduct interest on any home improvement loans taken out for the sake of a rental property, and even any interest on credit cards that are used solely for things like furnishings and repairs in your rental property.
To make the most of this benefit, entrust your interest calculations to a trained accountant. They can break down exactly how much interest you’ve paid, and ensure that you’re always submitting the correct deductions on your tax return, no matter how many different accounts you’re dealing with.
# 2 – Depreciation
Landlords are also able to deduct depreciation, which considers the cost of your property (minus land value), across what the IRS terms as your property’s ‘useful life’, which tends to be 27.5 years for residential properties, and 39 years for commercial properties. This is intended to factor in things like general wear and ageing, which could end up costing you a great deal across property ownership otherwise.
Cost segregation also fits within this category, and is a service that can lead to further tax savings by reclassifying components like wiring and fixtures for a shorter depreciation period (normally up to 15 years). You can discover how much you would save this way using this accelerated depreciation calculator. It’s also well worth speaking to the professionals about how this option could help with savings across your real estate ventures.
# 3 – Repairs
Repairs are an inevitable but costly element of real estate ownership, and they often require the highest yearly outlays after your initial investment. They also have the downside of often coming out of the blue, but the good news is that repairs and maintenance costs are also fully tax-deductible for the year they occur.
Simply keep all receipts and paperwork relating to repairs that might include painting, plumbing, and even putting in new windows. Then, be sure to deduct every relevant expense, including labor costs, required tools, and so on.
Tax deductions really can make or break your real estate venture, so make sure you aren’t missing out on these three essentials!
