One of the many financial benefits associated with real estate investments is the ability to maximize tax deductions. Specifically, the tax liability of a real estate investor may be offset by mortgage interest as well as the property’s various ownership, operation and management fees. The investor may also deduct depreciation on the property, which can account for a significant amount of money. When your property is classified as a real estate investment, you can reduce taxes by deducting mortgage interest on your personal residence as well as your investment property. Before you can take advantage of real estate investor tax deductions, however, you need to determine if you meet the IRS’s guidelines for investor status.
The most significant qualification for determining if the real estate is an investment is linked to how you use the property. You can occupy the property yourself for some days out of the year, but these days must be less than 10 percent of the days that the property is leased to a third party. You will also need to document all related expenses on the property so that they can be properly accounted for.
At JaxBooks, we are a trusted bookkeeping firm that specializes in real estate investor bookkeeping. In addition to helping you determine if your property qualifies as a real estate investment, we can keep your books throughout the year. In the process, we can provide useful advice to help you maximize the related deductions and reduce your taxes.