Uncle Sam gives, and Uncle Sam takes away.
But in the case of buying local Hattiesburg investment properties… you can earn investment property tax deductions for your Hattiesburg properties.
For real estate investors, the United States provides the opportunity to earn a living purchasing investment properties… and holding those properties as investments, and of course the income from those properties is taxed.
But many new investors often overlook tax deductions that could have an impact on their bottom line. Today, we’re going to take a look that Hattiesburg MS real estate investors can take advantage of.
Income Sources You Can Potentially Deduct
- Repairs and expenses paid by rental tenants are considered income. This could include an emergency water heater repair that tenant took care of on his own. These repairs can be deducted.
- In some cases, tenants will trade repairs and upgrades to a rental unit for a reduction of rent. These services can be deducted, so long as they’re claimed as income, and must be charged at fair market value. You cannot work out a deal with your tenant to fix a light switch for three months rent, then deduct that ludicrous “income” on your tax return.
Security Deposits
A security deposit is generally not considered taxable income, as the primary intention behind collecting this deposit is to ensure its return to the tenant at the conclusion of the lease term. However, if a tenant breaches the lease agreement and subsequently forfeits their deposit, it can then be categorized as taxable income, particularly if it is utilized to cover the costs of necessary repairs or damages incurred during the lease.
These repair expenses can also be deducted from your taxable income, providing you with some financial relief. To ensure that your finances are managed properly, it is essential to consult with your accountant or your local property management team. They can guide you in accurately documenting and accounting for your security deposits, allowing you to avoid any unnecessary income tax liabilities on sums that you intend to return to tenants when they vacate the property. This approach will help you maintain financial clarity and compliance in your rental operations.
Other Common Investment Property Tax Deductions
- The portion of your mortgage that is directed towards interest is 100% tax-deductible. Your mortgage lender will provide you a form in January stating this total.
- Travel to and from the property to make improvements, show the property, or collect rent are considered work expenses, and deductible.
- Certain deductible expenses that investment property owners take advantage of include taxes, insurance, tax return preparation costs, lawn & garden care, losses resulting from theft or “acts of god” (floods, earthquakes, and other disasters), legal and professional services.
- Depreciation on the value of the property is deductible. This can be complicated to calculate, and it’s recommended to speak with a local Hattiesburg accountant.
- Your home office, if used to run your real estate investment business, can help generate tax deductions as well as long as the home office meets the minimum requirements (consult your tax advisor)
- By leveraging a comprehensive understanding of all available tax deductions, owners of investment properties can significantly boost their revenue while simultaneously lowering their tax liabilities. This strategic approach not only increases cash flow but also opens the door to the potential acquisition of additional properties, further expanding their real estate portfolio.
Moreover, there may be a variety of other methods to effectively decrease your tax obligations. It’s advisable to consult with a qualified financial advisor or a certified public accountant who is well-versed in the latest tax regulations. These professionals typically stay updated on emerging tax deductions that may specifically benefit investment property owners in Hattiesburg, ensuring that you can maximize your financial advantages.
By leveraging a comprehensive understanding of all available tax deductions, owners of investment properties can significantly boost their revenue while simultaneously lowering their tax liabilities. This strategic approach not only increases cash flow but also opens the door to the potential acquisition of additional properties, further expanding their real estate portfolio.
Moreover, there may be a variety of other methods to effectively decrease your tax obligations. It’s advisable to consult with a qualified financial advisor or a certified public accountant who is well-versed in the latest tax regulations. These professionals typically stay updated on emerging tax deductions that may specifically benefit investment property owners in Hattiesburg, ensuring that you can maximize your financial advantages.