Uncle Sam both gives and takes away.
But in the case of buying local Portland/Salem investment properties… you can earn investment property tax deductions for your Portland/Salem properties.
For real estate investors, the United States offers the chance to make a living by purchasing and holding investment properties. Naturally, the income generated from these properties is subject to taxation.
Income Sources You Can Potentially Deduct
- Repairs and expenses covered by rental tenants are treated as income. For example, this could include a tenant handling an emergency water heater repair themselves. These repairs can be deducted.
- In some cases, tenants will trade repairs and upgrades to a rental unit for a reduction of rent. These services can be deducted, so long as they’re claimed as income, and must be charged at fair market value. You can’t arrange for your tenant to fix a light switch in exchange for three months’ rent and then deduct that inflated “income” on your tax return.
Security Deposits
These repairs are deductible expenses.
Ensure your accountant or local property manager is correctly handling your security deposit accounting so you don’t end up paying income tax on deposits that you’ll eventually need to return when a tenant moves out.
Other Common Investment Property Tax Deductions
- The portion of your mortgage payments allocated to interest is fully tax-deductible. Your mortgage lender will provide a form in January detailing this amount.
- Travel expenses incurred for property-related tasks, such as making improvements, showing the property, or collecting rent, are also considered work expenses and are deductible.
- Investment property owners can take advantage of several deductible expenses, including property taxes, insurance, tax return preparation costs, lawn and garden care, losses from theft or natural disasters (like floods and earthquakes), and legal and professional services.
- Additionally, depreciation on the property’s value is deductible. This can be complicated to calculate, and it’s recommended to speak with a local Portland/Salem accountant.
- If your home office is used to run your real estate investment business, it can also generate tax deductions, provided it meets the minimum requirements (consult your tax professional)
By maximizing all available tax deductions, investment property owners can boost their revenue and lower their tax liability, potentially enabling them to acquire additional properties. There may also be other strategies to further reduce your tax burden, opening the possibility to purchase additional properties. There could be additional strategies to further reduce your tax liability. Talk to your financial advisor or certified public accountant, as they typically keep abreast of new tax deductions that Portland/Salem investment property owners can claim.