When it comes to buying local investment properties in Belleville, you can benefit from investment property tax deductions for your Belleville properties. It’s a case of Uncle Sam both giving and taking away.
Real estate investors have the opportunity to make a living by buying investment properties in the United States, holding them as assets, and generating income from them. Of course, the income earned from these properties is subject to taxation.
It’s common for new investors to overlook tax deductions that could significantly impact their bottom line. Today, we’ll explore the tax deductions that real estate investors in Belleville, IL can benefit from.
Income Sources You Can Potentially Deduct
- When rental tenants pay for repairs and expenses, it is considered rental income. Even if it’s something like an emergency water heater repair that the tenant paid for themselves, these expenses can still be deducted.
- Occasionally, tenants may offer to perform repairs and upgrades to their rental unit in exchange for a reduction in rent. While these services can be deducted as expenses, it’s important to claim them as rental income and charge fair market value. It’s not permissible to negotiate an absurd deal with a tenant, like fixing a light switch in exchange for three months’ rent and then claiming that amount as income on your tax return.
Security Deposits
Typically, a security deposit is not considered taxable income because it’s intended to be returned to the tenant at the end of their lease. However, if a tenant breaks the lease and forfeits their security deposit, you can claim it as income, provided that the deposit is used to cover repairs.
The expenses incurred for such repairs are considered deductible.
It’s essential to confirm with your accountant or local property manager that they’re handling your security deposit accounting appropriately. This will help you avoid paying income tax on security deposits that you’ll end up returning to the tenant when they vacate the property.
Other Common Investment Property Tax Deductions
- The part of your mortgage payments that goes toward interest is fully tax-deductible. Your mortgage lender will provide you with a statement in January that shows the total amount.
- 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 Belleville 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)
Investment property owners can boost their revenue and lower their tax liability by utilizing all available tax deductions. This, in turn, could allow them to acquire more properties. Apart from these deductions, there could be other ways to reduce tax liability. You can consult with your financial advisor or certified public accountant as they usually keep up-to-date with the latest tax deductions that investment property owners in Belleville can claim.