While Uncle Sam gives and takes, when it comes to acquiring local Fort Walton Beach investment properties, you have the potential to secure tax deductions for your Fort Walton Beach properties.
For individuals involved in real estate investments, the United States provides the opportunity to earn a living by acquiring investment properties and holding them as long-term investments, with the generated income subject to taxation.
However, many inexperienced investors often overlook potential tax deductions that could significantly impact their financial outcomes. Today, we’ll delve into the tax advantages available to real estate investors in Fort Walton Beach, FL.
Potential Deductions from Income Sources
Repairs and expenses covered by tenants in rental properties are considered income, including instances where a tenant independently manages an emergency water heater repair. Such repairs are eligible for deduction.
Occasionally, tenants may exchange repair or upgrade services for a rental unit in return for a rent reduction. These services can also be deducted, provided they are declared as income and priced at fair market value. However, entering into an agreement with a tenant, such as fixing a light switch in exchange for three months’ rent, and claiming that unconventional “income” on your tax return is not permissible.
Security Deposits
A security deposit is not taxable, assuming your intent is to return it at the end of a lease term. However, if a tenant breaks the lease and forfeits the deposit, you can claim it as income, as long as the deposit is used for repairs. These repairs are deductible expenses.
It’s crucial to ensure with your accountant or local property manager that they handle your security deposit accounting correctly to avoid paying income tax on deposits that will be refunded when a tenant leaves.
Other Common Investment Property Tax Deductions
The portion of your mortgage directed towards interest is 100% tax-deductible, with your mortgage lender providing a form in January stating this total.
Travel expenses to and from the property for improvements, property showings, or rent collection are considered work expenses and are deductible.
Other deductible expenses include taxes, insurance, tax return preparation costs, lawn and garden care, losses from theft or natural disasters, and legal and professional services.
Depreciation on the property’s value is deductible, although it’s recommended to consult with a local Fort Walton Beach accountant due to its complexity.
A home office, if used for running your real estate investment business, can generate tax deductions as long as it meets the minimum requirements (consult your tax advisor).
By leveraging all applicable tax deductions, investment property owners can boost their revenue and reduce their tax liability, potentially enabling the purchase of additional properties. To explore further ways to decrease your tax liability, consult your financial advisor or certified public accountant, as they stay informed about new tax deductions that Fort Walton Beach investment property owners can claim.