7 Outstanding Real Estate Tax Benefits That Investors Need to Know…

Businessman putting a card with text TAX BENEFITS in the pocket

Want to know the key to making the big bucks?

You have to find a way to make money in your sleep. If you’re only generating income while you’re on the clock, then you’ll never get rich.

That’s why savvy business people invest in real estate.

You have to put in some work up front. But once you get the place in the right shape to accept tenants, you can start making money hand over fist.

The payout doesn’t stop at rent checks, either. When you own an investment property, you can get tons of money back once tax season rolls around.

Owning investment property brings outstanding real estate tax benefits that you should be aware of before making purchases. Read on to learn more.

1. Interest

Writing off various types of property related interest is one of the biggest tax benefits for investors.

Every month when you make a payment on a credit card or loan, some of that money goes to pay the interest. The total interest you’ve paid off in a year is tax deductible.

The kinds of interest you might be able to write off include points and loans origination fees, mortgage, and unsecured loans.

Managing the interest deductibles for a mortgage is pretty straight forward. When it comes to unsecured loans, there are some factors that make it more confusing.

For example, if you used money from one unsecured loan on more than one property. It’s important to keep track of details like that so your accountant can file your taxes as accurately as possible.

2. 1031 Exchange

A 1031 exchange allows a property investor to put off paying a capital gains tax. This allows the investor to take the money from a sale of one property and put it into another property.

How can you qualify for this tax benefit?

When you sell the first property, you have to find a new property within 45 days. That time frame might sound tight. But after the sale, you have a cushy 180 days to close on the new dwelling you found.

The only other stipulations are that the new property has to be of similar or greater value to the old property. You also need a third party to handle the transactions related to the 1031 exchange. And, if you’re considering a trust, a Delaware Statutory Trust is 1031 exchange friendly.

3. Repairs

One drawback to renting out property is that you’re financially responsible for any repairs that need to be made. Luckily, you can make some of that money back.

Plus, you don’t have to wait until a window or washing machine completely breaks to write it off either. General maintenance to keep things in working order can be written off too.

Does a cleaning person come by every Monday morning to mop and vacuum the hallways? That’s another expense you can deduct.

The only thing that doesn’t qualify is major renovations or improvements. If you repair the cabinets in the kitchen that are hanging by their hinges, that’s a repair.

Gutting the whole kitchen and installing new cabinets, appliances, and flooring is an improvement. That’s because it increases the overall value of the property.

In these cases, you can’t write off the total of this expense in one tax filing. Instead, you have to split up the total over several years of tax filings. This is called depreciation.

The length of depreciation can be anywhere between 5-27 years, depending on what the improvement was.

4. Travel Expenses

This tax benefit is one that many people forget about. You can deduct any traveling you must do as it relates to your rental property.

Travel deductions include day-to-day car expenses. If you are the property manager for your investment, this tax benefit can be very lucrative.

Think about your weekly visits to the property or trips to and from home improvement stores to get repair supplies. That mileage really starts to add up. There are even apps available that can help you keep track of the driving you do!

Additionally, if you have a property that’s far away, airfare and hotel costs also count as deductions.

5. Employees and Contractors

If you don’t do much property-related traveling, you probably have some employees who do it for you. That also works out for you because employee wages are tax deductible.

The government offers this tax benefit to help stimulate the economy. So instead of doing the work of a property manager yourself, hire someone and write it off.

Even if you don’t have the money to hire an employee, you can still use this benefit. Independent contractors are also included. That means you can deduct your payments to plumbers, electricians, exterminators and more!

6. Property Insurance

If you own a rental property, you’ll have to take out all sorts of insurance policies. You have your basic hazard insurance plan, but then you need add-ons. Flood, liability, sewer-backup, and loss of income are coverage plans every property investor needs.

That certainly adds up, especially since insurance on a tenant-occupied property is more expensive. But you can get some of that money back when you deduct it on your tax filings.

7. Utilities

The cost of rent is rising fast to the point that many people can’t keep up. If you cover the cost of any utilities, that’s a huge draw for potential tenants.

It’s a win-win situation for everyone involved. Your renters have one less expense and you get to deduct it on your tax filings.

Take Advantage of These Real Estate Tax Benefits

Not sure if you should buy a home or apartment to rent out? Investing in property pays off in more ways than one. If you take advantage of these 7 real estate tax benefits, you’ll make the money you’ve been dreaming of.

Need more insight on how to reach your financial goals? Then check out this article for more tips and inspiration.

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