As Uncle Sam gives, so Uncle Sam takes.
In the case of buying local Savannah investment properties, you can earn investment property tax deductions for your Savannah properties.
Investing in real estate in the United States provides the opportunity for investors to earn a living purchasing investment properties and holding those properties as investments, and of course, the income from those properties is taxed.
Tax deductions are often overlooked by new investors but could have a substantial impact on their bottom line. Let’s explore some opportunities in Savannah GA for real estate investors.
Income Sources You Can Potentially Deduct
- Expenses and repairs paid by rental tenants are considered income. Typical examples include a tenant who completed an emergency water heater repair on his own. These repairs may be deducted.
- It is not uncommon for tenants to trade repairs and upgrades to a rental unit for a reduction in rent. The cost of these services can be deducted, provided they’re claimed as income and charged at fair market value. You cannot work out a deal with your tenant to fix a light switch for three months rent and deduct it from your tax return.
In the case of security deposits, they are not taxable because your intent is to return them at the end of the lease term. If, however, a tenant breaks the lease and forfeits their deposit, you can claim the deposit as income as long as you use the deposit for repairs.
Expenses related to these repairs are deductible.
You want to make sure that your accountant or local property manager handles security deposit accounting correctly so you won’t pay income taxes on deposits that you’ll turn back around and pay back when a tenant leaves.
Other Common Investment Property Tax Deductions
- The portion of your mortgage that goes towards interest is 100% deductible. Your mortgage lender will send you a form in January showing this total.
- Expenses for travel to and from the property to make improvements, to show the property, or to collect rent are deductible as work expenses.
- Among the deductible expenses for investment property owners are taxes, insurance, tax return preparation, lawn & garden care, losses from theft, disasters (floods, earthquakes), and legal fees.
- Depreciation on the value of the property is deductible. To calculate this correctly, you should consult a local Savannah accountant.
- If you use your home office to run your real estate investment business, you can claim tax deductions as long as it meets the minimum requirements (consult your tax advisor).
Investment property owners can potentially increase their revenue and reduce their tax liability by taking advantage of all applicable tax deductions, giving them the opportunity to purchase more properties. There may be other ways to reduce your tax liability. Consult a financial planner or certified public accountant for more information on how to claim tax deductions for Savannah investment properties.