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Taxation in general is not something that is liked by anyone but we are all forced to pay our share of assessed taxes. Taxation in real estate is more complex than a simple 1040 form for an average worker. There are things you can do and things that you cannot do each year to help lower your taxation expense. There are 5 tax tips to know in 2012 for real estate investors. It is the information learned from these tips that can be applied to taxes this year and may be able to be applied to tax filings in the future.
5 2012 Tax Tips for Real Estate Investors
1. Repairs Deduction Versus Improvement Depreciation
The IRS sees things a bit differently when you spend money on repairs and improvements. The property repairs that you make for fixing broken furniture, appliances or exterior structures can be expensed as repairs at the end of a taxable year. This expense offsets any income that you have earned and often lowers your total tax due. Depreciation must be used when you make improvements to your property to increase its value. This can include new paint, installing windows and doors or other enhancements to entice long-term lease agreements.
2. Certain Utilities are Tax Deductible
If this will be your first year filing taxes on your real estate income, it is helpful to know that many of your utilities and expenses directly related to your investment business are tax deductible. This includes overnight trips to inspect a rental property, hotels, mileage and food. Communication tools like Internet access, mobile phones and Internet connected devices may be deducted if all or an allowable percentage is used for operating your real estate investment property business.
3. Property Taxes and Insurance Premiums
The expense that you pay for assessed taxes and insurance premiums can be deducted from your earned rental income. Depending on the location of your property, carrying flood insurance, fire insurance and liability insurance can be large portion of your annual costs of maintaining the property. These expenses as well as property management fees can be deducted in 2012 to allow you to keep more of your earned income.
4. Legal Fees, Advertising Fees and Cleaning Fees
It costs money to draft tenant leases, to advertise vacancies and to clean up a property shortly after you purchase it or rent it after a tenant moves out. These expenses can add up quickly especially if you have a high turnover of tenants in the same year. These are considered to be ordinary and necessary expenses that are deductable under the 2012 IRS tax rules for rental properties.
5. Business Start-up Cost Deduction
The cost of starting your new real estate investment business can be eligible for amortization deductions over a period of time while you operate the business. The costs for legal fees, corporation or partnership filing fees, research and development are usually eligble to you to offset your investment property taxes. Getting expert tax help can end up saving you a lot of money to be a real estate investor in 2012.