Top 10 Real Estate Tax Write-Offs

By Brian Davis on 10 March 2010 (Updated 10 March 2011) 6 comments

As real estate values have fallen and foreclosures have swamped the market, increasing numbers of would-be sellers are deciding to lease their properties instead of selling. These new and reluctant landlords often miss out on massive tax deductions available for investment properties, which can save thousands of dollars in taxes. In an economy where every penny counts, make sure you take advantage of these ten real estate tax write-offs, some of which are exclusive to real estate investors and landlords.

1. Mortgage Interest

Even homeowners can write off mortgage interest, so this deduction is widely known and understood, but mortgage interest can add up to many thousands of dollars each year; not a deduction to miss.

2. Hazard Insurance

If you were a reluctant landlord, you can rejoice over this one: homeowners can't write off their homeowner's insurance, but landlords and real estate investors can write off their hazard insurance premium as a deductible expense. Be sure to save a copy of your insurance premium invoice, and give it to your accountant.

3. Property Taxes

As intuitive as it sounds, thousands of property owners forget to list their real estate property taxes as deductible expenses every year, and end up effectively paying those taxes twice.

4. Property Depreciation

Real estate depreciation is not well understood, but it adds up to a substantial sum each year. Basically, the government allows real estate investors to take a "paper loss" of value on a mathematical model that assumes that properties will steadily decline in value over 27.5 years, from their purchase price to a value of $0. This means you can deduct a depreciation loss of 2/55 of the purchase price, for the first 27 years you own a property. Depreciation can become complicated however, so make sure you discuss this one with your accountant.

5. Legal Counsel & Landlord Forms

Most of the legal bills, including the cost of landlord forms and real estate legal contracts, are tax deductible for your investment property. Important exception: eviction costs, which generally cannot be deducted, but speak with your accountant for further details on exactly which expenses can and cannot be deducted.

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6. Property Management Costs

If you've hired a property management company to oversee your tenants, leases, and properties, their costs are tax-deductible, so be sure to add up their fees and write them off (and remember that you'll owe the property manager a 1099 if the total fees were over $600).

7. Private Mortgage Insurance (PMI)

If you have a high mortgage relative to your property's value (and right now, who doesn't), chances are you pay an extra charge each month for private mortgage insurance along with your mortgage payment. These charges, while annoying, can at least be deducted from your taxable income.

8. Maintenance & Repairs

While homeowners can't write off their home improvements, landlords and real estate investors can! There are some exceptions (so touch base with your accountant), but in general any repairs that are required for habitability and safety are tax-deductible.

9. Advertising & Tenant Screening

When landlords have vacant properties, they can write off the costs associated with filling them, such as advertising the rental property, pulling credit reports, obtaining criminal background checks, etc.

10. Settlement Costs

If you're one of the rare and lucky people actually buying investment properties right now, some of the settlement costs you pay can be deducted, such as mortgage lender fees and government recordation costs. Not every settlement charge is tax-deductible, however, so be sure to send a copy of your HUD-1 settlement statement to your accountant so they can comb through it and find all of the deductible costs.

As a final note, remember that your accountant's bill is deductible as well, on next year's tax return, so be sure to include last year's accounting bill among this year's tax deductions, and good luck saving money on taxes!

This is a guest post by Brian Davis. Brian is a landlord and real estate investor, who contributes educational content for real estate investors to dozens of websites, and consults for EZ Landlord Forms. Read more articles at EZ Landlord Forms:

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Guest's picture

It should be clarified, the PMI deduction is only for purchases or refinances made since 2007 and is scheduled to expire at the end of 2010 unless it is extended. Also, there are income limits where it phases out (I believe phase out starts at $100k and stops completely at $110k for married filing jointly).

Guest's picture
jim

Don't forget utilities.

Travel costs are also a potential good one. You can deduct mileage if you're running around town doing business for your rental.

Guest's picture

Depreciation is deductible. Impairment losses on properties can also be claimed as deductions under certain accounting standards.

Guest's picture

I just found this article so I'm a little late on commenting but I wanted to clarify that you can't depreciate your investment property to a $0 cost basis since you have to back out the value of the land.

Otherwise, carry on.

Betty

Guest's picture

Does advertising include maintaining a website to secure tenants? I know we have strict rules on online stuff.

Guest's picture
jean

@jim

Disagree.
Your advice might save some items, but not very efficient in another items.