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4 Critical Investment Property Tax Tips

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Now that the summer is coming to an end, tax time is right around the corner.  As such, it’s never too early to start preparing.  And you will definitely want to do some planning because owning investment property offers a plethora of tax benefits, such as the ability to deduct all of your business expenses, even “phantom expenses” like property depreciation.  The better prepared you are, the more likely you’ll be able to maximize your tax benefits.

First and foremost, make sure you account for all of your deductable property costs.  Missing any rental tax deductions for which you are eligible is like having money taken directly out of your pocket.  Therefore, it is important to be organized and retain all expense records such as utility bills, mortgage interest statements, insurance invoices, property tax assessments, relevant purchase receipts, and similar documentation.

Second, make sure you keep track of the mileage you incur driving back and forth from your properties, as well as any other mileage attributable to managing your properties (like driving to Home Depot to buy supplies, driving to the courthouse if you need to evict someone, or any other trip that involves your rental property business).  Your mileage is deductable, so keep track of it by keeping a clipboard or mileage log in your vehicle so you do not forget to log any of your miles.

Third, you ought to retain all of the above records for at least 3 years in case you get audited in the future.  Other documentation, such as your mortgage closing documents, should be kept indefinitely; or at least, for as long as you own the property.  The IRS does not mandate any special manner of retaining these records, but I would recommend you keep them in a locked filing cabinet.

Finally, get yourself a good accountant.  I have found that having an accountant more than pays for itself.  Not only will you save hours of tedious tax return preparation time, but your accountant will also be able to identify hidden / less obvious tax deductions for which you may be eligible and that will reduce your overall tax liability.

The bottom line is that the tax benefits of renting a property are the icing on the proverbial cake.  So make sure you follow as many best practices as you can in order to get the largest tax break possible.  Good luck!

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