We’ve covered the basics of taxes for real estate investing over the past month, including deductions, 1031 exchanges, business travel, and more. In fact, we even teamed up with the experts like a real estate tax professional over at The Real Estate CPA to write a comprehensive tax guide for real estate investors. Now it’s time to delve into some more advanced strategies available to investors. These include:

• Real estate depreciation
• Real estate revenue
• Real estate loss carry-back and carry-forwards
• Utilization of Section 179 capital gains and losses

The Importance Of Date Placed In Service

By now, most investors are familiar with the basic tax benefits of depreciation for real estate properties. However, even more, is available to investors! In fact, real estate investors can utilize a variety of special set-aside deductions on their property tax bills. If you’re interested in maximizing your tax deductions for your properties, we recommend you read this article from the experts over at The Real Estate CPA.

But wait! Before you think that maximizing your tax deductions is too complicated and hard to understand without a CPA by your side, know that our friends over at The Real Estate CPA have created an easy to follow guide to explain all the different types of property tax deductions Texas real estate investors can utilize.

Let’s Take A Look:

First, remember that tax payments are separated into two categories: real property tax and personal property tax. The first part of this guide will cover personal property deductions. As you may know, for real estate investors the most important deduction is depreciation – which we covered in the last article of this series. However, other important deductions to know about include:

1. Capital loss carry-forwards – This will apply to all investors as long as they have capital losses to carry forward from previous years.

2. Net operating loss carry-forwards – This will apply to you if you have a net operating loss from previous tax years.

3. Section 179 deduction – This is a maximum deduction for business expenditures on real estate properties. The amount which can be deducted against is limited to $25,000 per year in Texas per property and cannot exceed 50% of the value of the investment property. Section 179 deductions can be carried forward to future years.

4. Depreciation from personal use – If you personally live in a part of the property, you can deduct depreciation for that portion of your home. This is commonly called a “personal residence exclusion,” and can be deducted up to $15,000 as of the tax year 2018. Note that if you are married filing jointly, this deduction cannot exceed $30,000. If you are over 50 years old, these amounts will increase to $20,000 and $40,000 respectively.

5. Self-employment tax deduction – If you are self-employed and are eligible to deduct your self-employment tax, you can deduct up to $500 per year.

6. Real estate tax credit – While this is focused on homeowners, real estate investors can claim the credit as well. The amount of the credit equals 2% of the property’s real estate tax bill. So if your taxable value is $20,000 and your property pays an annual property tax bill of $2,000, then you would receive a 100% credit equal to 2% of $20,000 or $400.

Now that you understand the basics of real property tax deductions, let’s review how you can claim them. (though you can seek help from a real estate tax professional) For example, let’s say:

• You have a depreciable property worth $6,000 and you paid personal property taxes of $200 in the current year.

• Your capital loss carry-forwards from previous years are for $4,000.

• Your net operating loss is less than $400 ($400 of your past losses must be carried forward to future years). And finally, your section 179 deduction is less than $1,000 for this year.

In this case, you would be able to deduct your $200 personal property tax against your capital losses. Your remaining $190 ($200-$6,000/$6,000) of capital losses would only be deductible against future capital gains.

Deducting Travel Expenses For Real Estate Investing

The IRS isn’t always clear about which set-aside deductions are available for real estate investors. In fact, there are multiple ways that you could deduct your travel expenses when you do business in real estate properties. For example:

1. Deducting travel expenses by home office

2. Deducting travel expenses by a day trip to look at properties

3. Deducting travel expenses by long, overnight trips to look at properties

4. Deducting travel expenses for business meetings

5. Deducting travel expenses for hosting a client or seller at your home or property

6. Evaluating the IRS’s policy on how you can use your vehicle when you are traveling for business purposes vs personal purposes (like commuting to and from work) is crucial. This will help you maximize the use of your deductions.

If you are a real estate investor located in Texas, we recommend that you review this article from the experts over at The Real Estate CPA regarding their guidance on how to maximize the use of your vehicle. They will also review its policy on using the vehicle for personal vs business purposes.

Remember, the IRS has no set-aside for real estate investors in Texas! So when it comes to calculating your deductions for your expenses, you’re going to have to figure out all of them on your own. This is where real estate CPAs can be invaluable when it comes to maximizing your deduction opportunities – which will help you maximize your tax refund.

Remember, if you answer four simple questions in this article, you will have a clear idea of the deductions which are available to real estate investors in Texas. You will know what types of items can be deducted and how to claim those deductions on your federal tax return.

Now that we’ve reviewed the set-aside deductions for real estate investors, let’s take a look at some other items on the IRS’s list of tax deductions for real estate investors. These deductions include:

1. Travel expenses if you go out of your way to purchase a property

2. Travel expenses for driving clients to look at investment properties

3. Travel expenses for traveling between properties you look after and manage

4. Travel expenses if you go out of town overnight to help your tenant move from one property to another. This would be considered a business expense but can only be deducted against the income which is generated from this property.

5. Home office expenses to conduct your business on a regular basis

6. Moving expenses, if you are going from one property to another (even if it’s just a day trip)

7. Business entertainment expenses, such as business lunches, dinners, and other events which will be used for business purposes

8. Home office expenses for managing rental properties and other tenants on a regular basis – this is an important deduction you should consider when looking at buying properties in a market where there isn’t much competition. This will help you maximize the income generated from these rental properties since rents can only be claimed against the income which is generated each year from these tenants.

9. Travel expenses to look for new investment properties. Whether this is a vacation away from your primary residence or a day trip to the state where there is an available investment property, any travel expense which will help you generate new income can be deducted.

10. Travel expenses to go to court for the purpose of evicting tenants or defending lawsuits that have been brought against you as a result of your real estate business (you must have paid taxes on any income which you earned from that property). This is a deduction you’ll want to keep in mind if you are thinking about investing in cash-flowing properties overseas. The IRS considers the property to be overseas at the time of the eviction.

11. Investment expenditures to run your business (to help you make money) and to purchase investment properties which generate profits. For example, if you buy a vending machine for $1,000 to run in a restaurant that generates $100 per month, then that is an investment expenditure that will help you earn a profit from your real estate business.

For more information, you can visit Real Estate Calculators.