Investment Property Tax Deductions List for Texas

Investment Property Tax Deductions
Learn about Investment property tax deductions and how to save money.
Investment Property Tax Deductions

Did you know that there are tax deductions that you can take advantage of?

In the case of buying local Texas investment properties, you can earn investment property tax deductions for your Texas properties.

Many real estate investors do not take advantage of all the available tax deductions. Knowing what you can legally claim will help you lower your tax bill. It will also put more money in your pocket to invest in your next hot property.

It’s also worth noting that investors can only deduct property expenses if it was rented or legally available for rent at the time. They can only deduct the portion of an item that was related to their business. And they must keep documents to back up their claims.

Income Sources You Can Potentially Get Tax Deductions

Rental Repairs

Revenue may include rental repairs and expenses. These expenses may include a tenant who took care of an emergency water heater repair on his own. 

These repairs are deductible. In some circumstances, renters will trade rent reductions for repairs and enhancements to a rental unit. These services are deductible if reported as income and charged at fair market value. You can’t tell your tenant to install a light switch in exchange for three months’ rent. Furthermore, claim it as “income” on your tax return.

Business Miles

Did you know that you can deduct travel expenses? “For travels taken to the property for business activities, investors can deduct travel expenditures, including the ordinary mileage deduction,” explains Andrew Poulos. He is a tax accountant and founder of Georgia-based tax firm Poulos Accounting. “If an investor employs a realtor or property manager to find a tenant, such expenses are also tax-deductible.”

You probably spend a lot of time traveling to your investment properties as a real estate investor. Likewise, if you’ve spent time on the road putting your automobile to work. Whether it’s to investigate a new home or to close on a new rental venture.

You can claim the regular mileage rate. You can also claim the actual cost of putting your car in service. But this is only applicable if you use your vehicle in conjunction with your real estate activity.

Rental Advertising Costs

You can deduct the advertising costs from your income in the same year that you paid them. These include the use of the internet, print media, brochures, and signs to sell the property.

Security Deposits

A security deposit is not taxable. You can claim the security deposit as income when a renter breaks the lease. You can also do that when there is a need for repair, tenants also forfeit their stake of the deposit.

These repairs are deductible expenses. Ensure your accountant or local property manager is handling your security deposit accounting appropriately. So you don’t end up paying income tax on security deposits you’ll be returning when a tenant moves out.

Deducting Closing Costs

Closing fees will almost certainly make up a major amount of your operational expenses. Whether you invest in rental properties or acquire homes to restore and flip. You can deduct these closing fees whether you’re buying or selling to reduce your tax liability.

If you’re selling a home, you’ll have to pay capital gains tax. More so, it’s crucial to take advantage of whatever tax breaks you can.

Loan Interest

Investors can deduct the interest paid on a loan for an investment property.

For example, if your loan interest is $20,000 and your loan fees are $200, you can claim these expenses on your personal tax return. You can’t claim your repayments on the principal. Furthermore, you can’t claim interest on the total size of the loan if you refinanced a portion of it for personal reasons. Whether the loan was secured by the equity in an investment property.

Insurance and Utility Costs

The cost of homeowners’ insurance and flood insurance can add up quickly, especially if you own several properties. These costs are tax-deductible, which is great news for real estate investors like you.

Building Depreciation

Depreciation of the building’s construction and any renovations you make to the property may be eligible for a deduction.

If the property was built before September 16, 1987, then you won’t be able to claim depreciation on the initial construction costs. if it was built after that date, you can claim a depreciation deduction of 2.5 percent per year for 40 years. This means that if you paid $100,000 for a building in 2000, you might claim a $2,500 annual depreciation credit until 2040.

Depreciation for repairs completed before February 27, 1992, is not deductible.  However, structural improvements completed after that date can be depreciated at a rate of 2.5 percent per year for 40 years.

Keep in mind though that you can only deduct expenses for the time that the property was rented or available for lease.

Investment property owners can boost their revenue and lower their tax burden by using all available tax deductions. Doing so will allow them to buy more properties. There may be other options for reducing your tax bill.

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