Top Tax Deductions for Real Estate Investors

Real estate investors are always looking for ways to maximize their profits, and one way to do that is by taking advantage of tax deductions. Numerous tax deductions are available for real estate investors, from deducting interest on a mortgage to writing off repairs and maintenance. 

However, with so many tax rules and regulations to keep track of, it can take time to determine which deductions apply to your particular situation. It will be helpful for you to know the top tax deductions as they can help you reduce tax liability. You can also contact Tennessee CPAs to learn more about tax deductions professionally. 

Understanding standard tax deductions for real estate investors: 

  1. Mortgage interest deduction

The mortgage interest deduction is a significant tax deduction for real estate investors, allowing them to deduct the interest paid on their mortgage loans. This deduction applies to both primary and secondary residences and rental properties. 

Investors can deduct interest payments on loans to acquire, improve, or maintain rental properties. The mortgage interest deduction can significantly reduce an investor’s taxable income and save them considerable money on taxes.

  1. Depreciation deduction

Depreciation is a tax deduction that allows real estate investors to recover the cost of an investment property over its useful life. The IRS considers residential rental properties to have a useful life of 27.5 years and commercial properties to have a useful life of 39 years. 

The depreciation deduction allows investors to offset the cost of the property against rental income, reducing their tax liability. It is important to note that depreciation only applies to the building structure, not the land on which it is built.

  1. Repairs and maintenance deduction

Real estate investors can claim a tax deduction for repairs and maintenance expenses incurred on their investment properties. This deduction applies to the costs incurred to keep the property in good condition, such as fixing a leaky roof, painting, or repairing plumbing. Investors should keep detailed records of all expenses to claim the maximum deduction. 

Note that expenses for improvements that increase the property’s value, such as adding a new room or a swimming pool, are not eligible for this deduction but may be eligible for depreciation over time.

  1. Property tax deduction

Real estate investors can also benefit from a property tax deduction. Property taxes are usually the property owner’s responsibility, and they can be substantial depending on the location and value of the property. However, property taxes can be deducted from federal tax returns, reducing the taxable income of the real estate investor. 

This deduction is particularly valuable for those who own multiple properties and are subject to high property tax bills. It’s essential to keep track of property tax payments and obtain documentation of the expenses to ensure eligibility for this deduction.