What are the Tax Advantages of Real Estate Investing?

Amherst, NH Resident Considers Real Estate

When investing in real estate properties, you can deduct the money paid in property taxes, property insurance and mortgage interest on your taxes.  Money that goes to improve or repair a rental property can be deducted from your taxes as well.  This will greatly reduce the taxable income that you make from your rental property, making this a more lucrative investment.

An Amherst resident was considering investing in real estate.  Curious how this would affect his taxes, he sought advice from Merrimack Tax Associates.

Deductions for Real Estate Investors

The deductions for real estate properties can go a long way to making this kind of investment profitable.  Money paid to the operation, management and maintenance of the property is all tax-deductible.  In addition, you can write off other business-related expenses.  These include advertising the property to entice renters, business equipment and office supplies, legal and accounting fees and office space used to run the real estate business.

There are a variety of ways to deduct expenses for rental properties on your taxes.  One is the pass-through deduction.  With this deduction, you are not required to itemize your expenses but instead deduct up to 20% of your qualified business income.  The rent received from tenants is considered qualified business income. 

Keeping Records of Expenses is Critical

Just like with any IRS tax deduction, it is imperative that you keep meticulous records of your expenses.  This includes the bills and receipt of payment.  This will ensure that you are covered and are able to justify your deductions in the event of an IRS audit.

Investing in real estate can offer a variety of tax savings when done correctly.  The Merrimack resident was able to meet with Merrimack Tax Associates and now has a better understanding of how to best approach this new investment opportunity.