8 Tax Strategies for Real Estate Investors Anyone Can Use To Pay Less And Keep More
So what can you really deduct?
The most common question asked during tax season….
What can I deduct?
Well, to answer that question, the only thing the average taxpayer needs to understand is what the definition of a business expense is.
Business expenses are tax-deductible.
So what is a business expense? According to the IRS, a legitimate business deduction is an expense that occurs regularly throughout your business. Another type of business deduction is an expense that helps you a profit as an investor.
As an example, if you’re a rental property owner, you are able to deduct nearly all the expenses you’ll pay to manage your property.
This gets interesting when you can use non real estate parts of your life as deductions.
If you use a room in your house as an office, for example, a certain portion of home expenses can be deducted such as:
- internet bill
- cell phone bill
- mortgage interest
- home repairs
And of course, the amount you’re able to deduct is related to the size of your office in proportion to your house.
Real Estate Investors have a ton of opportunities to save on their taxes.
Here are 8 areas you can look for tax deductions we’re going to explain in quick detail:
Meals and Entertainment
Family & Kids
1. Depreciation: A Powerful Tool For Real Estate Investors
Depreciation is the government’s way of saying that they have realized there is going to be wear and tear on your property, which they will allow you to report as a deduction for the purpose of offsetting the income that you’re making from the property.
To depreciate a rental property, you need to own it and use the property to generate income. You should also plan to keep it for more than a year. You can’t depreciate the property if you buy it, renovate or fix it up, and resell within a few months.
2. Maximizing Travel Expense Write-Offs
Travel expenses from visiting your rental property are a great tax deduction.
As an example, if you live in Arizona, but fly out to Washington to manage a property that needs your attention, you can write off the flight, hotel, food and other related expenses you incurred in order to maintain your property.
Travel expenses related to attending professional development and education opportunities regarding real estate investing may also be deductible.
This is the next one on the list.
3. Education/Training Expenses
Taking courses or seminars are all write-offs. That means, the plane ride, hotel, food and costs of attending the seminars are tax write-offs.
There are a lot of online programs and courses that you can take to better yourself. As an example, if you take a photography class on Lynda and use those skills for your real estate related work, that can be deducted as well.
Many software and magazine subscriptions for real estate can be deducted as well.
4. Automobile And Related Expenses
This goes hand in hand with travel. If you use your vehicle, take into account your mileage and gas and gas expenses.
5. Meals and Entertainment
Meals for business purposes, including meeting with clients or a significant partner who is a part of the business, are tax-deductible.
Entry fees to get into real estate clubs are deductible. If you take a possible client out for drinks and talk property, you can write off those shots shots shots!
6. Family And Kids
Pay your kiddos as employees and save! Remember, they are taxed in a lower tax bracket.
Numerous activities like organizing your office, delivering postcards etc. can be paid work for your children. This is an amazing way to prevent you from paying taxes.
7. Home office
Having a door that closes is one way to make sure your space counts as a home office. Purchasing a computer, fax machine, calculator, internet etc are all write-offs. As long as you can prove they were both ordinary and necessary expenses for your business, you’re in the clear!
8. Management Fees
If you are paying a property management company a 10% monthly fee, that can also be considered a tax deduction. You can report those payments as necessary to run and maintain your business.
Make Tax Season Easier By Creating Habits
If you want to maximize your tax write-offs, you have to make taxes a part of your daily life.
One of the easiest ways for you as an investor to minimize your tax burden is to simply take note of everything and claim every legitimate expense you’re entitled to.
We like to use a monthly budget planner like The Clever Fox Budget Planner.
We give them away to our paid clients but you can buy one on Amazon.
CEO of BlackStarTaxes with a background in marketing, business, entrepreneurship, and a deep appreciation of knowledge. Kobe was naturally drawn to the task of creating a way to educate his community.
Through BlackStarTaxes, he hopes to teach the importance of financial literacy to our family’s futures..