Investing in real estate is primarily driven by the goal of generating profits. To maximize profits, it is essential to minimize the tax burden on your revenues. While many property owners are aware of deductions such as interest and repairs, there are several other valuable tax deductions that often go unnoticed. Here are 5 often overlooked IRS tax deductions for investment properties in Kansas City.”
Remember to diligently keep detailed records, save all receipts, and consult your tax advisor regarding any deductions. Tax regulations undergo regular updates and should be assessed on a yearly basis.
5 Little-Known IRS Tax Deductions for Investment Properties in MO
1. Insurance Premiums
Insurance costs for investment properties tend to be higher than those for personal properties due to the increased business risk. While personal insurance premiums are not tax-deductible, insurance premiums for investment properties can be deducted. These deductible premiums encompass expenses for property, liability, flood, and earthquake insurance. Additionally, if you employ staff members for property management or maintenance, carrying workers’ compensation is mandatory, and the premiums for this are also tax-deductible.
2. Casualty and Theft Losses
On the topic of losses, those are deductible too. One caveat: you can only deduct the amount that exceeds what the insurance company covers. For instance, suppose your investment property has a 10% deductible, and a fire completely destroys it. If your claim is valued at $250,000, your deductible amounts to $25,000. You are eligible to claim the $25,000 as a tax deduction.
3. Independent Contractors
When managing investment properties in Kansas City, it can be tempting to hire the least expensive assistance for odd jobs. Oftentimes, these handymen are paid in cash. While this approach may cut costs on maintenance and repairs, it hinders your ability to benefit from tax deductions. Any independent contractors who invoice you or offer receipts can be considered deductible expenses. Maintain thorough records and make payments with a business check to substantiate these deductions.
4. Home Office
Many investment property owners do not have a dedicated business office. However, if you do, it is tax-deductible. If you do not have a separate office, you can still deduct your home office. The IRS permits deductions based on dedicated use criteria, ensuring that the space is solely for business purposes. For example, if your children also use the desk for homework, it may not qualify. Yet, if you have a designated area equipped with a desk, computer, files, and other necessary items exclusively for business activities, you are eligible for deductions.
5. Local Travel Expenses
How frequently do you find yourself traveling to and from the property, whether it’s for picking up materials at the home improvement store or making deposits at the bank? These activities are all business-related and not considered part of your usual daily routine, making them eligible for deduction as local travel expenses. Be sure to maintain a mileage log and keep receipts for fuel, maintenance, and vehicle repairs. At the end of the year, evaluate whether the standard mileage deduction or actual expenses result in greater savings, and claim the appropriate deduction accordingly.
Legal and Professional Services
When managing your investment property in Kansas City, make sure to account for all legal and professional service costs. While it’s typical to deduct management company fees, don’t overlook expenses like legal fees for lease reviews, court fees for evictions, and accounting costs. These expenses are all eligible for deduction from your property revenue. Understanding the deductibility of these costs may influence your decision to engage these services. By utilizing professionals in these areas, you not only free up your time for other tasks related to your investment property but also gain peace of mind knowing that these crucial aspects are being handled effectively.
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