Investment Property: How Much Can You Write Off on Your Taxes?

Thinking about buying an investment property? One of the best parts about owning rental real estate is the tax benefits it can offer. If you’re new to the world of investment properties, you might be wondering how much you can actually write off on your taxes. Understanding these tax deductions can help you keep more of your hard-earned rental income and make your investment journey a little smoother.

Let’s break down the most common tax deductions landlords can claim. First up is mortgage interest. If you have a mortgage on your investment property, you can usually deduct the interest portion of your monthly payments. For many property owners, this can be a significant deduction, especially in the early years of your loan when most of your payment goes toward interest.

Property taxes are another biggie. These are the local taxes you pay on your rental home, and they’re fully deductible. Don’t forget to keep all your tax bills and payment receipts as proof. Along with property taxes, you can also deduct the cost of insurance premiums for your rental property. This includes homeowners insurance and any additional policies you might have, such as flood or earthquake insurance.

Let’s talk about repairs and maintenance. Did you have to fix a leaky faucet or call in a handyman to patch up some drywall? Any repairs you make to keep the property in good shape are fully deductible in the year you pay for them. Just make sure you keep detailed records of what was done and how much it cost. Regular maintenance like landscaping, pest control, and cleaning services can also count as deductible expenses.

Depreciation is a unique tax benefit for real estate investors. Even though your investment property may be going up in value, the IRS lets you “depreciate” the building (not the land) over 27.5 years. This means you can claim a portion of the property’s cost as a deduction every year, which helps offset your rental income. Calculating depreciation can get a little tricky, but there are plenty of online calculators and tax professionals who can help you figure it out.

Don’t forget about other common expenses like property management fees, legal fees, and advertising costs if you’re looking for new tenants. Even the cost of travel to and from your rental property can be deductible if it’s for business purposes, so save those gas receipts!

If you have multiple investment properties, you can combine your deductions across all of them, as long as the expenses are directly related to each property. It’s important to stay organized and keep all your receipts, invoices, and bank statements. This makes it much easier when it’s time to file your taxes or if you ever face an audit.

Tax rules can change, and every situation is a little different. If you’re unsure about what you can write off or how much, it might be a good idea to chat with a tax professional who’s familiar with rental real estate. They can help you maximize your deductions and make sure you’re following the latest tax laws. With the right knowledge, your investment property can work even harder for you at tax time!