Writing Off Investment Properties
May 23rd, 2007 Categories: Financing, Keller Williams
So I learned this (the hard way this year) and wanted to share my findings to those who may not have good accountants guiding them through the process. It involves pretty interesting tax implications- let me start with the basics- keep in mind I’m not an accountant or attorney and I am only sharing my one dimensional perspective thru my unofficial blog…..So here goes…
I think in most states the rule of thumb is you get to write off the interest portion of your primary residence from your annual Federal Tax Bill. I was also under the impression I could write off the interest on my 4 investment properties as well. And for one year (that I was consulting as a 1099 and doing real estate for majority of my time) I did just that and received almost a $40,000 tax return. Things were humming-my investment properties equity was growing, the tenants were paying their bills on time and I was planning for the next year’s tax return, when I got really busy consulting for a portion of the year, and then got a new accountant to do my taxes. Important factors to the end result since I ended up paying close to $30,000.00 in taxes and have been annually since.
Here’s the bottom line: If you are a real estate investor and you are interested in writing off your investment property interest payments you need to make sure that you are a “real estate professional” for at least 750 hours in a given year –OR– at least worked one hour longer than any other earnings you may have received outside of your real estate profession. I have been consulting in the information technology industry the past few years (while “doing” real estate investing and attempting to sell too). The problem for me lies in that my consulting time has exceeded my real estate profession time the past few years and therefore I don’t get to write off my investment property interest.
Just a point of interest when deciding on how many hours you dedicate to your real estate profession- it could mean you get a nice tax return or you pay one…..
1 Comment »
RSS feed for comments on this post. TrackBack URI
Thanks for the post and pointing that out. Our readers would appreciate that kind of advice. As a real estate investor it literally pays to do your homework, or your time as a real estate professional translates in to paying less taxes.
Comment by john — July 10, 2007 #