Investment Property Tax Deductions: Interest, Insurance, Costs

In part one of this multi-part blog series, we went over some of the numerous tax deductions and related benefits that are often available to real estate investors. There are literally dozens of such incentives out there that are often open to you if you’re investing in real estate at any level, but too many investors aren’t aware and don’t take full advantage.

At Fox Financial, we’re here to ensure you’ve fully realized all these benefits during any real estate situation, whether through our passive real estate investing, rental property investment or any of our related services. In all honestly, a big part of assisting our clients with their potential tax ramifications comes down to simply making them aware that certain benefits or options exist – and that’s exactly what we’ll continue doing today in part two of our series. Here are several other investment property-related areas where you’ll often find significant tax breaks or related incentives.

Closing Costs

Closing costs, or the various fees and expenses you pay as you close your acquisition of the property, are generally tax deductible – and even those that aren’t can be depreciated over time as part of the acquisition cost itself. If you use an accountant, you will want to send them the settlement statement for any property (this used to be known as a HUD-1, but now is called a CD, or closing document) you’ve purchased within the tax year; if you are doing your accounting on your own, this will be the relevant document to keep for this filing.

Meal Costs

A unique potential tax benefit for landlords and real estate investors is the ability to deduct 50% of meal costs while traveling to visit properties you own. This is only within a 40-mile radius of where you live, and will apply to meetings with business contacts, real estate agents or contractors – you cannot take a deduction for meals eaten alone, only for those where you meet with other professionals.

Property Management

If you’ve decided to pay a property manager to handle your property for you, all their management and monthly fees can be written off. This is often a feature that convinces investors to hire such a manager.

Insurance Coverages

There are a couple insurance premiums that are tax deductible:

• Rental and default insurance: Policies rental property owners will almost always have.

• Mortgage Insurance: While paying PMI (private mortgage insurance) is no one’s idea of a good time, at least it can be deducted from taxes.

Mortgage Interest

In addition, any interest you pay on rental property loans is tax deductible. This is an “above the line” deduction that comes off your taxable rental property income. For your primary residence, deductions for mortgage interest are limited to $750,000 for a calendar year.

Various Professional Fees

Finally, there are various professional fees to consider. These include accounting, legal, real estate agent and any others, all of which can be deducted from taxable income. However, since 2018, personal tax preparation expenses are no longer deductible – only those for your investment property.

For more on tax benefits as a real estate investor, or to learn about any of our investment properties or other services, speak to the staff at Fox Financial today.