Real Estate Tax Deductions
It’s that time of year again… Tax time. I know, I cringe when I think about it too. Real estate is one of the most tax favored assets in the United States. If you’re a home owner or rental property owner, don’t forget to take advantage of all the tax deductions available to you. The following are real estate related items that are usually deductible.
Home Owner Tax Deductions
- Mortgage Interest: Interest paid on your mortgage is deductible, if the balance is under $1million ($500,000 if married filing separately).
- Points or Loan Origination Fees: If you bought a home in 2011 check your closing statement for points or origination fees, these may be deductible.
- Property Taxes: Real estate taxes excluding itemized charges such as trash collection or improvement assessments are deductible.
- Mortgage Insurance (PMI): If you pay mortgage insurance premiums and your adjusted gross income is less than $109,000 ($54,500 if married filing separately) these premiums are deductible.
- Capital Gains Exclusion: If you sold a property that was your primary residence for 2 out of the last 5 years, your profits are excluded from capital gains taxes (up to $500,000 married filing joint).
Rental Property Deductions
In addition to the items above, income properties offer even more deductions.
- Rental Expenses: There’s a whole slew of things listed on IRS Schedule E that are tax deductable for rental properties. These items are pretty self explanatory and include; advertising, cleaning and maintenance, insurance, legal and other professional fees, management fees, supplies, and utilities.
- Depreciation: Our tax system allows you to claim depreciation on improved portions of your income properties (the building, not the land). This is generally done on a 27.5 year schedule. Note; you do have to reclaim that depreciation when you sell, unless you do a 1031 exchange.
- Auto and Travel: Most small rental property owners use their personal vehicles for business purposes and can claim the standard mileage rate as a deduction for their rental related travels.
- Home Office Expense: If your rental business office is in your home, you may qualify for the home office deduction. This would allow you to deduct a portion of the expenses related to your home (insurance, repairs, utilities).
I hope this information helps you recognize a few ways you could save on your taxes. However, you should always check with your tax adviser before claiming any of these items. I am not a tax professional, and I am not intending to give tax advice.