Investment Property Tax Benefits

When tax time rolls around, many new rental property investors worry about tax implications. What can they write off as business expenses? Will they end up owing more than they estimated? We have great news! Your investment property tax benefits can outweigh your tax liabilities when you file your returns. 

*Disclaimer: we are not tax specialists. Always consult your CPA or tax attorney for how you may benefit from any of the items below.* 

Tax Cost Segregation Studies

Tax cost segregation studies provide investors with the ability to do an engineering study for any kind of real estate. Although usually performed for commercial real estate, you can conduct a study on residential real estate as well. These studies, conducted by a certified engineer, break down the mechanical and personal aspects of residential homes. Then they demonstrate how those items (think a roof or water heater) depreciate faster than the actual building structure itself.

There’s a science to it that can result in a much lower tax responsibility. However, don’t try to figure it out for yourself. Only a certified engineer and your accountant can tell you how you’d benefit.

[Embed video: Tax Cost Segregation Studies Webinar]

Allowable Tax Deductions for Maximizing Investment Property Tax Benefits

When you consider all the activities that go into owning an Orlando-area rental home, the list can be dizzying. However, the good news is there is a hefty list of items you can deduct from your taxes, including Orlando property management fees. Below we offer answers to a few common questions. 

Again, don’t take our word for it! Bring these suggestions to your tax professional to see how they apply to your specific situation. 

Which Rental Property Tax Deductions Can I Claim?

  • Advertising
  • Cleaning and maintenance
  • Depreciation
  • Homeowner association dues and condo fees
  • Insurance premiums
  • Interest expenses
  • Local property taxes
  • Management fees
  • Property repairs
  • Maintenance or landscaping work 

Can You Write Off Large Appliances for Rental Property?

Any capital improvements (i.e., work on the property that adds to or increases the property’s value and is generally a permanent fixture) or costs (like replacing large appliances) cannot be deducted as rental property expenses. However, these items can be added to the cost basis of the property and depreciated as part of a tax cost segregation study (see above).

What Professional Fees are Tax Deductible?

Legal fees you incur for resolving tax issues, advice, or preparation of tax forms related to your business usually are deductible. Ask your tax professional which specific fees you can deduct. 

Can You Deduct the Cost of Furniture for Your Rental Property?

Yes, furniture—and any costs to repair existing furniture—can be a deductible expense. The same applies to amenities and small appliances. Larger items are usually entered as assets that depreciate (see large appliances above).

Your Tax Professional is Your Best Friend

We share all this as a starter for your conversation with your tax professional. Ideally, you should have that convo as soon as you purchase rental property and touch base at the end of each calendar year to go over any changes. This way, you hit the ground running in the new year, knowing what to gather and how you can maximize your tax benefits from owning central Florida rental property. 

The Realty Medics makes it easy to share property information with your tax professional. At the end of the year, we’ll prepare a 1099 for you and post it in the Owners Portal, where you’ll also find other important documentation. The form will include every transaction throughout the year, making this an easy document to use during tax season.