Top 5 Rental Property Tax Deductions

Well, it's that time of year again. We all dread it, but we can't avoid it. That's right, it's tax time. Hi, this is Tom Wheelwright, bestselling author of Tax-Free Wealth, CPA for many entrepreneurs and real estate investors, most notably Robert Kiyosaki, author of Rich Dad Poor Dad. I'm here to make your life easier, hopefully save you some money and time by explaining how you can maximize your refund — not just minimize your taxes, but maximize your refund. Today I'm going to break down the top five things you can write off this year if you're a real estate investor.

The good news is you can be applying these tips if you own two properties, five properties, or 200 properties. I have over 40 years of experience in real estate taxes, starting with Ernst & Young, including three years in the national tax office focused on real estate, four years with a Fortune 500 company in charge of their real estate business from a tax standpoint, 14 years as an adjunct professor in the Masters of Tax program at Arizona State University, and 30 years building and selling CPA practices, and currently running a CPA franchise — the WealthAbility franchise.

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Now let's get back to the show. Number one in our write-offs is mortgage interest. If you are a homeowner for your own property, you get a mortgage interest deduction so long as your debt on your property is only $750,000, and so long as you itemize your deductions. That's true whether it's interest on a flip or interest on a long-term investment — you get 100% of your interest deduction. So if you're in a 30% tax bracket and you pay $10,000 of mortgage interest, you're getting $3,000 back from the government. One thing to be sure of for all of these deductions: make sure you're keeping good records. If you have pretend documentation, you get a pretend deduction.

Number two is property taxes. If you have your own home that you're living in, you're limited to $10,000 of tax deductions. But if you own a rental property or you're flipping — so you've got taxes on properties that you are turning — those taxes are 100% deductible, no limitation. Think of it this way: if you're doing something for yourself, buying a home for yourself, you get a limited deduction. If you're doing it for somebody else and providing homes for other people, you get the maximum deduction.

Number three is insurance. Insurance is a business deduction like any other — no real limits. That can include PMI, rental property insurance, any kind of property and casualty insurance, but not life insurance. You know, the types of insurance you would get at steadily.com. Don't forget to keep the documentation for your insurance as well.

Now let's talk about depreciation. Depreciation is the king of the write-offs — I like to call it that. In chapter seven of my book Tax-Free Wealth, I call it the magic of depreciation, and it's particularly magic right now because for 2023 we have a write-off of 80% bonus depreciation, which is an enormous write-off. If you're going to do that, I'd recommend a cost segregation study. You might be able to write off as much as 20% of the cost of your property. This is one deduction that only applies if you have a long-term rental — it does not apply to properties you're going to flip. But it is the real estate investor's secret weapon. What's great is your property can be going up in value and you still get these big deductions called depreciation.

Number five is one we don't literally think about a lot, but it's management and repairs. Certainly if you have a management company, their fees are deductible just like any other business deduction. But repairs are special. Let's say you acquired a property during the year and you did some fix-up on it. There are some accountants and tax preparers who will just say that's part of the cost of the building, so now you're going to depreciate that over as long as 27½ years for residential property. But the reality is a lot of what you do probably qualifies as a repair — and remember, repairs aren't recaptured when you sell the property. If depreciation is magic number one, repairs are actually magic number two, and they're often missed by accountants and tax preparers when doing a tax return. It's worth spending a little more time and a little more money on your tax accountant if they understand repairs.

Let me give you a bonus: the home office. People are often told don't take the home office deduction, it's a red flag. But if you do your tax return the right way and you set things up properly with a proper tax strategy, you should never have an issue with your home office. A home office not only covers what goes into the office itself, but it also makes that first trip out to see a property deductible and the last trip home deductible. It also increases your automobile expense — for most people a home office will double their automobile deduction. So don't forget the home office.

So there you have it — the top five tax write-offs you should be utilizing this tax season. Thanks so much for taking the time to watch this video. I'm Tom Wheelwright and you can visit us at wealthability.com. We will give you a second opinion on last year's tax return, so not only can we talk about this year and going forward, but we can actually look at last year and see if there's something you could be doing differently. If you found this video helpful, like and subscribe to the BiggerPockets channel for more videos just like this, or visit biggerpockets.com to check out all of the amazing tools BiggerPockets has for investors.