4 Real Estate Tax Tips to Consider in 2022

As the New Year approaches quickly, many people have started setting new goals and resolutions for the New Year, including real estate investors. Many investors have set themselves the goal of starting the new year with higher profits and more money in the bank. One way to make this decision more than a vacation wish is to develop a tax saving strategy. Fortunately, there are many sections of tax law that favor property investors, thereby increasing overall profits. Let’s take a look at four tax tips you won’t want to miss out on in 2022.

1. Subtract your expenses

One of the biggest tax perks that investors get during the tax year is the deduction of expenses. Regardless of whether you invest in commercial or residential real estate, as a real estate investor you can deduct all the usual and necessary expenses related to the maintenance of your investment property for tax purposes. The expenses considered common and necessary include, but are not limited to, the following:

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Property taxes

Investors can currently deduct up to $ 10,000 from their federal income tax for state and local property taxes paid. While this is the current rule, the tax world is eagerly awaiting a proposed tax change that increases the cap on this deduction to take effect. The Biden government has proposed raising the state and local tax (SALT) deduction limit to $ 80,000. This proposed change is expected to take effect from 2021 to 2030.

Mortgage insurance premiums

In addition to property tax, the tax code also allows real estate investors to deduct the insurance premiums paid. The IRS allows a deduction for mortgage insurance premiums paid in the year the premium was paid and accrued.

Property management fees

As previously mentioned, investors can claim a deduction for all customary and necessary expenses, including property management fees. So if you have hired a property manager, any fees incurred can be deducted from your tax return.

Building maintenance and repair costs

In addition to deducting property management fees, you can also deduct fees associated with maintaining and repairing your property. However, if you are thinking of claiming a deduction for a repair or improvement, contact a tax advisor first. A repair can be mistaken for an improvement, and they have two completely different tax treatments.

Travel expenses

One little-known expense that real estate investors can benefit from is travel expenses. You can deduct from travel expenses associated with collecting rental income, managing, maintaining or servicing the property.

2. Debt write-offs

In addition to the tax deduction of expenses, real estate investors can also take advantage of one of the jewels of the tax world: depreciation. Depreciation enables investors to cover the cost of their tangible assets over their useful life. In the case of residential property, the acquisition costs are depreciated over 27.5 years and in the case of commercial property over 39 years.

In addition to claiming the depreciation of the property, investors can also have a cost separation analysis carried out in order to claim the depreciation. If an investor chooses this strategy, the property improvements and the interior fittings of the building can be depreciated over a period of five, seven or 15 years.

If you want to use this strategy, working with a tax professional is highly advisable.

3. Deferment of the taxation of capital gains

In addition to depreciation, one of the other great luxuries of owning an investment property is the ability to defer taxation on capital gains. Investors can do this by making an exchange similar to Section 1031, using a Delaware Statutory Trust, or making a 721 exchange.

Each type of exchange has specific IRS rules that must be strictly followed. Hence, working with a qualified advisor is a must when it comes to deferring capital gains.

4. Practice good bookkeeping

After all, accurate bookkeeping is a must when it comes to the world of tax breaks and deductions. The IRS typically requires business owners to keep records for four years. So if you do use any of these strategies, be sure to keep good records.