#Tax Tip 1: Real Estate Taxes and Private Mortgage Insurance

In most cases, your mortgage payment includes taxes, and if you have high LTV (loan to value ratio) loan, it probably includes mandatory private mortgage insurance (PMI). These costs are tax deductible, so don’t let your accountant miss them!

#Tax Tip 2: Property Management Fees

Do you have a property management company manage your rental units? Their fees are tax deductible as well, so write them off!

#Tax Tip 3: Depreciation

Regardless of what the market says about your rental property’s value, Uncle Sam is willing to view it as a depreciating asset, and you can deduct the depreciation! This gets complicated, so consult your accountant, but the gist of it is that the government sees the depreciation as a 27.5 year-long decay in the value of your rental property.

#Tax Tip 4: Repairs and Updates

In the case of investment properties, the money you spend on repairs to put the property in habitable condition is tax deductible, and serves both as an investment in your property and to reduce your taxes. The laws get complicated here though, so be sure to consult your accountant on this issue.

#Tax Tip 5: Settlement Costs

One unfortunate reality of real estate is that it costs a lot of money up front, in the form of settlement costs. These costs range from mortgage fees (such as origination points and junk fees), to title fees (such as title review and settlement attorney fees), to appraisals, to recording fees and home owner insurance. Fortunately, most of these fees are tax deductible, so when you calculate your taxable income, be sure to bring your HUD-1 settlement statement to your accountant’s office.

#Tax Tip 6: Mortage Interest

The interest you pay every month to your mortgage lender (which constitutes, incidentally, the majority of your mortgage payment) is 100% tax deductible. Subtract it all from your taxable income.

When you must pay some taxes, it is wiser to use a professional tax preparer and be sure you are getting the maximum allowable deductions to reduce your tax bill. You see, the tax law is extremely complicated, and even more so when it comes to real estate investment, so be sure to hire a good account to prepare your return. The investment, both in the real estate and the accountant, will help pay for itself with these excellent tax advantages.

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