11 Tax Deductions Every Real Estate Investor Should Know

Philip Mandelbaum
Oct 9, 2017 · 3 min read

If you’ve been researching real estate investing, you’ve probably seen these two stats:

  1. Since 1776, real estate has accounted for 70% to 90% of all the millionaires in the United States.
  2. Since 1776, real estate has doubled in value every 20 years.

Not bad reasons to consider investing.

But did you know that, unlike many other, more traditional investment options, real estate offers significant tax advantages? In fact, real estate can be used as part of an investment portfolio to offset taxes from other investments.

Of course, you can use Section 1031 of the Internal Revenue Code to postpone your tax bill by arranging for a deferred like-kind exchange.

The following 11 tax deductions even the most casual real estate investor (and small business owner) should know:

I. Interest

If you’re using any kind of loan to purchase properties, the interest you pay every year can be written off for tax purposes.

II. Depreciation

Federal tax code allows you to claim depreciation on each and every property you own — each and every year, for 27.5 years — whether it’s actually losing value or not!

Here’s how its calculated (example):

Property Value: $50,000

Annual Deduction Equation: $50,000 / 27.5 years = $1818

Annual Rental Income: $5,000

Annual Deduction Equation (on what amount you’ll be paying taxes): $5,000 — $1,818 = $3,182

Wouldn’t you rather pay taxes on $3,182 than $5,000?

III. Repairs

We renovate every property that needs it, so the houses we sell are quality investments for our clients and quality homes for their tenants, and we recommend all real estate investors do the same. Not only do repairs protect you from future, even more expensive capital improvements, they’re tax deductible in the year you implement them. (More on repairs v. capital improvements.)

IV. Travel

If you live within driving distance of your rental properties, you can count your travel expenses (gas, rental costs, etc.) as business expenses.

If you’re an out-of-state or foreign investor (which we recommend!), your airfare, hotel rooms, meals and team meetings are all business expenses and can be used as tax writeoffs.

V. Home Office

There are at least seven reasons real estate investing is the best small business idea. One of them: you get to do it from home. And not only is it convenient, you can take deductions for your home office. Just make sure it has a door.

VI. Home Office Furniture and Supplies

Even if you don’t take advantage of the home office writeoff, you can deduct for supplies, equipment like computers, copiers and scanners, and the furniture you purchase to furnish the office.

You can either deduct 100% of the cost in the year of the purchase; or, you can deduct a portion of the expense over seven years (i.e., for depreciation). Don’t forget to save your receipts!

VII. Employees

If you hire contractors or have other people on staff, you can write it off.

VIII. Advertising and Marketing

The government allows you to write off expenditures related to promoting your business. This includes online, print, TV and radio advertising; the designing/printing of business cards, brochures and business ‘swag;’ the creation of ad copy, slogans, logos and other graphics; the development and maintenance of your website and social media profiles; the hosting of seminars and workshops; sponsorships; and more. Think outside the box.

IX. Professional or Legal Services

Anything you pay to a lawyer, an accountant or even a property management company can be written off for tax purposes.

X. Insurance

You can typically deduct premiums that you pay for business-related insurance. This can include errors and omissions insurance; professional malpractice insurance; general liability insurance; and workers compensation insurance, as well as the cost to insure your premises from fire, storm, theft, accident, or similar losses.

XI. Casualty Losses

This isn’t something you plan for, but in the event of a disaster, such as a flood or fire, you can deduct a portion of your related expenses as a loss.

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