Understanding Real Estate Tax Deductions

Home Buying

Understanding Real Estate Tax Deductions

If you are new to investing in real estate, you may find yourself confused with the tax laws surrounding what is considered an expense and what isn't. This can make investment planning difficult. Here, we will explain some of the most common tax terms, so you can better understand how they apply to your investing decisions.

 

  • Mortgage Interest: If you have a home loan, you can write off the interest you pay on it both at closing and throughout the year. It's the largest and most well-known tax break for homeowners.
  • Mortgage Points: Did you pay for mortgage points to reduce your interest rate? Those costs could be deducted.
  • Property Taxes: Property taxes can often be pricey. Fortunately, you can get a tax break on them - up to $10,000 for a married couple or $5,000 if filing separately. (Take note: You do have to combine them with state and local taxes or sales taxes.)
  • Capital Gains: If you sell a property, you can pocket the profits without reporting them as income. They must fall under $250,000 for a single or separate taxpayer and $500,000 for a married couple to take advantage of this exclusion.
  • Office Expenses: If you have a dedicated workspace in your home, you may be able to write off some of the costs. You should know that this is only available to self-employed individuals who use the space exclusively for their work, though - not remote employees of a company.

 

Be sure to consult your financial professional – someone who can explain what deductions you specifically qualify for.


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