5 Lessons About Deducting or Writing Off Your Real-Estate Investment

1. Keep Track of Your Expenses

Having good record-keeping allows you to be confident that you have all of the expenses that you have incurred throughout the year. Using a cloud-based accounting software can help you track your income, expenses and improvements you make to your property.

2. Depreciation – Maximizing deductions over the shortest period possible

Inexperienced tax preparers and taxpayers seeking to file their own returns, make the common mistake of depreciating shorter-term assets (i.e., furnaces, duct work, A/C units, etc.) that should be depreciated over 5 or 7 years, over longer periods of time, usually 27.5 years, which is the period of time that should be used for your rental property. Unknowingly, this mistake costs real estate investors thousands of dollars in tax savings each year.

3. Take Advantage of Capital Gains

The manner in which you hold your real estate investment will determine your ability to take advantage of special capital gains tax rates. You should work with your Tax Advisor to ensure you have setup the correct entity for your real estate investment purposes.

4. Defer or Lower Taxes with Tax Incentives

Working with a knowledgeable tax advisor can help you take advantage of certain tax benefits that allow you to defer paying taxes and/or lower your tax liability overall. Before you sell your real estate investment, work with your tax professional to learn of the tax implications that will impact. Make Integrating tax planning into your real estate investment strategy a normal way that you do business so you can optimize your tax situation.

5. Become a Real-Estate Professional (this is the way to free up otherwise non-deductible real estate losses)

Being able to qualify as a real estate professional for tax purposes is the first key step to being able to deduct the maximum amount of any rental real estate losses you may have in any given year. Understanding the rules and how to apply them to how you operate your real estate business is necessary if you plan to reap all the tax benefits afforded to real estate investors.

In closing, real estate investing takes a large amount of financial investment and a commitment to physically managing your investment(s). To achieve and maximize the return on such an investment, you should understand the best ways to deduct your associated expenses and work with an experienced tax advisor who can help you navigate the complexities of the tax code.

Download our free "Golden Tax Guide for Real-Estate Investors" E-Book!

Want to learn more about investing in real-estate? Our "Golden Tax Guide for Real-Estate Investors" E-Book will help your understand the tax implications real-estate investors face and how to navigate these complexities. Never worry about getting into tax trouble as a real-estate investor again!

Get Your E-Book Now!