Buying investment property has one specific intention: to make a profit. Of course, maximizing profits means limiting the amount of taxes you pay on revenues. While most property owners deduct the interest and repairs, most overlook other key legal deductions. Here are 5 overlooked IRS tax deductions for investment property in Boston.
Be sure to maintain good records, keep all receipts and discuss all deductions with your tax advisor. Tax laws change frequently and should be reviewed annually.
5 Overlooked IRS Tax Deductions for Investment Property in Massachusetts
1. Insurance Premiums
Insurance on investment properties is often more expensive than on personal properties because of the higher business exposure for loss. Unlike personal insurance premiums that cannot be deducted, investment property insurance premiums are deductible. Deductible premiums include those paid for property, liability, and flood and earthquake insurance. If you have regular employees who manage or maintain the property, you must also carry workers compensation, which is deductible too.
2. Casualty and Theft Losses
Speaking of losses, you can deduct those as well. There is one caveat: you can only deduct an amount over what the insurance company doesn’t pay. For example, assume you have a 10% deductible on the investment property and a fire burns it to the ground. If the value of the claim is $250,000, your deductible is $25,000. You can claim the $25,000 as a tax deduction.
3. Independent Contractors
When keeping investment properties maintained, it is an easy trap to find the cheapest help to do odds and ends work. Often these handymen get paid cash. While this may save you a few bucks in ongoing maintenance and repairs, it doesn’t help with tax deductions. Any independent contractors that invoice you or provide a receipt become a deductible expense. Keep good records and pay with a business check to have further proof of this type of deduction.
4. Home Office
Most investment property owners don’t maintain a business office. If you did, that is certainly deductible. However, if you don’t, you are still able to deduct your home office. The IRS allows you to deduct space per requirements of dedicated use, meaning your kids don’t also do their homework at the desk. But if you have a dedicated space with a desk, computer, files, and other related items, you can deduct this.
5. Local Travel Expenses
How often are you going to and from the property, running to the home improvement store to get materials or stopping at the bank to make deposits? These are all business related activities and not part of your normal daily activities making them deductible as local travel expenses. Keep a mileage log and any receipts for gas, maintenance, and repairs on your vehicle. At the end of the year, determine if the standard mileage deduction or actual expense save you more money and take the appropriate deduction.
Legal and Professional Services
Don’t forget to deduct any legal and professional service costs you incur. It is common for property owners to deduct management company expenses, but don’t always consider the legal expenses for lease review, court costs for evictions and bookkeeping and accounting costs. All of these are deductible from property revenue. In fact, knowing these are deductible expense may sway you to actually employ the services of these professionals. Using professionals in these areas frees up your time to spend on the investment property and other things while you also can sleep better knowing these important things are handled properly.
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