Real Estate Taxes 101: Which Income Property Tax Deductions You Should Be Claiming

The tax code is complicated and ever evolving.

Benjamin Franklin said it best, “In this world, nothing can be said to be certain, except death and taxes.”  It is an unfortunate truth that all of us will have to play the tax game for as long as we live, but on the other side, real estate taxes can be more rewarding than others.

If you’ve ever invested in traditional assets such as stocks, mutual funds, and CD’s, you’ll quickly learn that they don’t provide very many opportunities for tax deductions.

However, one of the easiest ways that many savvy investors have found tax benefits is through real estate investing. Like there are tax advantages that come from owning your own home, there are also benefits of real estate taxes when you own an income property.

8 Real Estate Tax Advantages of an Investment Property

UnknownAn income property can range from commercial to residential and is bought or developed for the purpose of earning profit through renting, leasing, or price appreciation.

As a landlord, here are 8 property tax deductions that can be accompanied with these types of real estate investments:

  • Depreciation (non-cash expense) deduction from income. This real estate tax deduction is based on the perceived decrease in the value of the real estate.
  • Mortgage interest tax deductions from income. A mortgage interest tax deduction is the interest you took for your mortgage loan and this real estate tax deduction is usually your biggest one. Also, remember to deduct your mortgage insurance premium if you took one out.
  • Deferral of capital gains via 1031 exchange
  • Cost of repairs, maintenance, and upkeep
  • Cost of services (rental property management & legal consultation or services)
  • Utilities
  • Travel costs associated with the property (checking on the property, inspection, repairs, etc). You can even deduct real estate taxes for the gas you used on your rental property visits.
  • Property tax deductions

When you add up all the deductions you can save on real estate taxes, there doesn’t seem to be a better tax haven than real estate. Many real estate investors are put in a more favorable tax position. For example, Yang Guo, a San Francisco-based Data Scientist at Uber discovered this year, after filing his returns online, he could expense most of the items on the rental portion of his investment. “In the end, my rental property resulted in tax savings of 30% of my total expenses. Thirty percent off of anything is great, but 30% off something unexpected is amazing,” adds this first-time real estate investor.

The Real Estate Tax Benefits of an SDIRA & LLC

Further tax advantages can be found in the way you choose to own the income property. While you should consult a tax professional first, it may be more beneficial to own the income property through an LLC or a self-directed IRA (SDIRA), instead of in your own name.

  • LLC: Owning an investment property within an LLC serves as a way to insulate yourself from liabilities as well as ensures that you can avoid double taxation. This potentially occurs when you use other types of corporate structures to invest in properties. Double taxation is avoided on the funds received through the collection of rent and if the property is sold later on.
  • SDIRA: Using an SDIRA to a purchase property is also a great opportunity to find some additional real estate tax savings. This process does require some extra steps but offers you many of the same tax-deferred growth advantages you find with a regular SDIRA.

If you choose to utilize one of these additional real estate tax advantage strategies to purchase an income property, it’s essential you do so from the start. Trying to move a rental income property from personal ownership to an LLC or an SDIRA after closing could cause additional headaches and potentially a taxable event.

Is a Rental Income Property Right For You?

A rental income property comes with many real estate tax benefits, such as cash flow, appreciation, and equity growth. And not only is it a solid, tangible investment, but it’s also a chance to lessen your tax burden and keep more profit in your pocket, instead of giving it to dear, old Uncle Sam.

Learn more about the real estate tax deductions you gain when you own an income property by calling 888-276-0232, or by scheduling a consultation when you have free time. Our Solutions Managers will answer all your questions and show you pre-vetted income properties in cash flow-proven markets nationwide.

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3 Comments

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Tom Hruden Jul 16 2016 - 11:35 AM
I have called one of your reps in Irvine three times. I have yet to have a return call from him. One other rep called me to discuss opportunities but because i was referred to the other rep, Arnold P. , no one is interested. I have 6 properties in CA and AZ. I have made hard money loans in CA, AZ, TX and N.C. I am interested primarily in the growth areas of Georgia and North Carolina. I have no interest in Michigan, Illinois , NY, Texas, I may want to purchase three properties. One outside of my IRA and two inside my self directed IRA that is in the form of a checkbook LLC. In the IRA I amy want to use all cash on one and leverage the other with NPG bank financing. I think you may be using a bank our of Kansas or somewhere near there that specializing in making loan in the IRA , non recourse. If you have a rep that wants to contact me, please have him do so. I can always meet you folks in your office on Main St. in Irvine, I had an office down the street before retiring.
    Alisha Chocha Jul 17 2016 - 10:40 AM
    Hi Tom, I will have your Solutions Manager reach out to you as soon as possible. Thank you for reaching out. We are glad to have the opportunity to be able to assist you with investing in growing areas like North Carolina and Georgia. Please let me know if you have any questions. Best, Alisha at HomeUnion
Jasper Whiteside Jan 9 2017 - 11:19 AM
I used to be really impressed when I heard that someone owned multiple houses. More and more I am realizing that owning multiple properties isn't to display wealth, it's a way to earn wealth. Even if the natural profit of an income property wasn't enough, now I learn that there are many tax deductions from having an income property.

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