At The Property Cartwheel Group, we want to help you understand the best tax deductions for real estate investors in the Phoenix area. Many people don’t know about all of the ways they can save money come tax time. There are likely many deductions out there that you aren’t capitalizing on as you should! Find out what the recent tax changes mean for you in our latest post, then give your CPA or tax planner a call to discuss your strategy!
Most investors will tell you the same thing. Real estate investment has some fabulous tax breaks to help you save a fortune come tax season. It’s important to learn about all of the deductions available to you so you don’t find yourself leaving money on the table. While the rules seem to change every day, below we offer some tips to help you save some money on your taxes!
General Management Costs
If you are a real estate investor, business owner, and landlord, there are a number of things you will be able to deduct as far as management goes. You will be able to deduct things like your home office space, office supplies, travel expenses, and your cell phone. Many people who work from home don’t realize how many expenses they have because of their business or rental property investments. Your high-speed internet, standing computer desk, and the good pens you like to buy are all needed for the management of your property, and as such, may be written off.
Phoenix investors spend thousands each year enlisting the help of others with tasks related to their investments. If you have hired a lawyer, property management firm, cleaning service, accountant, or other professional services, you’ll likely be able to write these amounts off as long as the expenses were made in direct relation to your investment properties. Keep in mind that repairs and maintenance are two separate things, so when hiring someone to work on your property, make sure you are classifying their charges accordingly. For example, a cleaning service would be maintenance, a plumber fixing a damaged faucet would qualify as a repair.
Rental Property Equipment
According to the new tax code, real estate investors can now deduct equipment used for the property. What is equipment exactly? Equipment is a long-term asset which includes things like heating and cooling systems, roofs, smoke detection systems, and more. If the item is furniture, machinery, fixtures, a vehicle, or a computer, it will likely qualify under this umbrella. This falls under the recently expanded category of business equipment and will help you to save a bundle in taxes if you are replacing property equipment.
As the years go by, your property is subject to the wear and tear from the people who live there and natural causes such as wind and rain. As such, you will need to make repairs to the home over time. The IRS allows you to take depreciation deductions for 27.5 years. Why 27.5? We don’t know. But the point here is that for the next 27.5 years, you will be able to deduct the amounts you spend on major improvements such as a new roof or finishing a basement. To properly deduct your depreciation expenses over time, you’ll need to take the cost of the improvement and divide it by 27.5. That amount will be able to be deducted over time. The sad reality is that things depreciate. The least you can do is avoid some of the losses by capitalizing on your depreciation deduction.
Your Mortgage Interest
As a buyer and seller of Phoenix real estate, you’re likely to encounter many instances where you find yourself borrowing money. With a loan also comes interest, but the good news is that you will be able to deduct these amounts. Your mortgage interest, points, and insurance costs can all be deducted from your taxes this year. The only limitation is on loans of $750k or more. Previously, this amount had been capped at one million. You interest costs can really add up, so make sure you have an accurate picture of how much you are paying in interest expenses each year.
When filing your taxes as a real estate owner in Phoenix, you’ll want to consult a professional CPA for their guidance and advice. A talented CPA will help you leverage every tax break and deduction available to you. They will provide you with the guidance and knowledge you need when it comes to big purchases and the effects of these purchases on your taxes. There are many other things that will affect your taxes this year in addition to what’s mentioned above. The 20% pass-through deduction is a huge recent change that allows 20% of your income to pass through tax-free. Of course, there are some qualifications to be met, but this and many other recent changes to the tax laws can greatly affect your real estate profits!