The Ultimate Guide to Real Estate Investment Tax Benefits

 

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By Brandon Turner, BiggerPockets

I have a good friend I would like to introduce you to.

His name is Sam, but most people know him by “Uncle Sam.”

That’s right, Uncle Sam — the good ‘ol U.S.A. Now, most people don’t think of the US Government as their friend, but most people are not real estate investors. If you are, and you know how to treat Uncle Sam right, he’s got some pretty terrific benefits in store for you.

This post is going to dive deep (and I mean DEEP… with over 3,000 words) into the tax benefits of being a real estate investor. But first, the obligatory disclaimer:

I am not a CPA. I’m also not a lawyer, doctor, or your mother. I’m a monkey in a room, frantically typing out words on a keyboard trying to produce Shakespeare. This information, while I’ve spent hours and hours researching, is still just my opinion on what I’ve learned. Please consult with a qualified (and real estate-savvy) accountant before making any decisions.

That said, I did work with Amanda Han from Keystone CPA (my own amazing real estate-friendly CPA) on this article to make sure everything was legit. If you need a CPA for your business, I highly recommend Keystone CPA. They do all my taxes, and my tax-life has become 1,000x easier since I hired them.

Now that we’ve got that out of the way, let’s get into this beast-of-a-post. Extra brownie points for those who make it through the whole thing. And to help, I’ve hidden a secret message in the text that will lead you to my buried treasure on a Caribbean island.

(Okay, that’s a lie. But for those who seek to truly understand these benefits, incredible treasures ARE in store for your future because they won’t be in Uncle Sam’s pocket.) 

Let’s get to the list, and we’ll start out with the most obvious one: deductions.

1. Deductions

As a rental property owner, you are able to deduct nearly all the expenses you’ll pay to manage your property. Everything from the mortgage interest you pay on the loan all the way down to the paper you buy for your printer (if you are using that printer primarily for real estate investing purposes, that is).

Of course, I’m not sure I’d necessarily qualify this as a “huge benefit” of rental property investing because you are still having to spend the money on those items. Who cares if you can deduct the cost of paper because you own a rental property — because if you didn’t have the rental, you wouldn’t have spent the money on the paper in the first place.

However, where this deduction can come in handy are on the areas of your life that are shared with non-real estate activities. For example, if you have a home office, you may be able to deduct a portion of your home expenses (fax machine, internet bill, cell phone bill, mortgage interest, home repairs, etc.) equal to the portion that your office takes up in your house.

Or if you need to drive up to check on your rental property and swing by the grocery store on the way back, you might be able to deduct the cost of your trip using the IRS standard mileage deduction (currently 57.5 cents per mile). The benefit of this, of course, is that it’s not like you wouldn’t have those bills anyway without a rental, so if you itemize those deductions carefully, you may be able to save significantly at tax time. You needed a cell phone, you needed that office, you needed that trip to the grocery store. Only now, you might be able to deduct some of them because of the business use.

Things like meals, travel, and other similar expenses may also be able to be deducted, but don’t assume you can go to Disney World with your family and write off the whole trip because you spent a few hours looking at real estate. That’s called “cheating,” and you’ll likely find yourself in some hot water if you ever get audited. However, just like your home office deduction, perhaps you can deduct a portion of your expenses to help offset the costs some.

Obviously — and I’ll say this numerous times in this post — talk to your CPA about what you can and cannot deduct.

Please click here to view the rest of this fantastic, thorough guide…