The top benefits of owning real estate include generating investment income, providing a stable housing solution, and owning an appreciating asset that builds wealth for retirement. However, many fringe benefits come along with property ownership, and tax benefits are some that many underestimate or simply overlook. Before you file this year, homeowners, farmers, investors, and landowners should be aware of all the tax benefits that your property provides this tax season. And if you don’t yet own a home but plan to, make sure you speak with a trusted advisor before you file to understand how lenders view your income when it’s time to borrow - especially if you are self-employed. You may do a double-take before claiming a bunch of write-offs. Here are 8 questions property owners should ask before hitting submit. 1. Can I deduct my Mortgage Interest? Homeowners receive a Form-1098 statement from their lender detailing each year’s mortgage interest – the premium charged by lenders for lending the money. This year, most property owners will find their full interest payments are tax deductible due to the following allowable limits:
2. Do I need to pay Capital Gains? Provided that you’ve lived in your home two of the past five years, capital gains do not typically apply if you sold your primary residence last year. The IRS gives detailed guidance but, generally speaking, married-joint filers can exclude up to $500,000 and single filers can exclude up to $250,000 when selling their primary home. If you are over these thresholds, however, check your eligibility. 3. Can I deduct my Property Taxes? You'll likely find you can deduct up to $10,000 of a combination of state and local property, income and sales taxes. This applies to property taxes on your primary residence, your vacation home as well as land that you may own. Call up the county for your property tax deductions if you can’t locate them so you don’t miss out! 4. Do I qualify for deductions if I run a Small Farm? No longer does Old MacDonald have his thumb on the farming market. A post-Covid “Great Awakening” valuing more rural and sustainable living revitalized a small farm movement both for personal use and for profit. For those who opted to start operating a small, working farm, your federal income tax liability can be significantly reduced due to write-offs from costly farmland, equipment and supplies as well as from claiming losses. If you’ve flown the urban coop, be sure to investigate allowances that may apply this tax season. 5. Can I deduct my Home Office? The simplified home office deduction is easy to use if a portion of your home is dedicated office space. Entrepreneurs and business owners should check the IRS Site for more information. 6. What taxes do I owe if I Flipped a property last year? If you flipped a property last year, the IRS taxes the net profit you made either at short-term or long-term gains rates. If you owned the property for less than a year, you fall into the short-term capital gains tax rate which should be the same rate as your marginal income tax rate. However, if you hold the property for a year or more, you’ll likely qualify for a more favorable long-term capital gains tax rate. 7. What taxes do I owe on my Rental Property? For rentals, your income may be taxed as ordinary income which simply means it gets declared like your day job wages. The one main difference, however, is that rental income is not subject to FICA like your personal wages. Your total rental income - your total expenses = your rental income. Simple. 8. What write-offs does my Investment Properties offer? Whether you own a short-term rental (I.E. Airbnb or VRBO), long-term rental (I.E. single or multi-family property) or you flip homes, property investors may benefit from more IRS allowed tax benefits including:
Tax laws and regulations are state, business and filer specific. Often, the home cannot be a second home or personal vacation home and access these deductions.
Whatever type of property you own, be sure to ask your tax advisor these questions to maximize the tax benefits that property ownership affords this tax season. Never want to miss a post? For more useful real estate tips & tricks, subscribe to our mailing list or contact us with any real estate questions. Authored By: Kat Medaries, REALTOR® MT Realty Advisors of Long & Foster Real Estate Village of Midlothian Sales, 1100 Jefferson Green Circle, Midlothian, VA 23113 Licensed to sell in the Commonwealth of VA | Equal Housing Opportunity For informational purposes only. Not intended as legal, financial, tax or credit advice.
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