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Resources - Taxes

Tax Deductions - Tax Write-offs for Income Property

Operating Expenses incurred via the operation and maintenance of an income producing property are tax deductible. Operating Expenses include such things as accounting fees, advertising costs, legal fees, insurance premiums, janitorial service, lawn maintenance service, leasing commissions, license fees, office supplies and expenses, pest control, property management fees, property taxes, repair costs, salary and wages, snow removal service, miscellaneous supplies, telephone, trash removal, vehicle mileage expenses, utilities, etc.

Mortgage Interest paid on any loans secured by income property is tax deductible.

Loan Points paid on any mortgage or loan secured by an income producing property are deductible over the life of the loan. For example, if you obtain a $100,000 loan with a 10 year term and you pay 2 points to obtain the loan, you can write off $200 a year over the 10 year period for a total of $1,000. If you sell the income property and pay off the balance of the mortgage early, you can deduct all unused points in that year.

Miscellaneous Closing Costs connected with the purchase of a property include title search fees, title insurance, appraisal fees, loan application fees and recording fees. All are deductible in the year of purchase.

Depreciation is the loss in value of an asset or building over time due to wear and tear, physical deterioration and age. The IRS allows you to depreciate income producing properties over their useful life which is determined by law. Current law requires that residential income properties must be depreciated over 27.5 years and commercial income properties over 39 years

Capital Improvements are subject to the same depreciation method as buildings. Capital improvements include a new roof, new siding, a new addition to a building, etc. Capital improvements to a residential income property are depreciated over a 27.5 year period. Capital improvements to a commercial income property are depreciated over 39 years.

Personal Property including such items as furniture, appliances, lawn mowers, snow removal equipment, etc. which are not permanently attached to the land or improvements. Depending on the type of property, a recovery period of 5, 7, or 10 years is usually used. Check with your accountant to determine the appropriate recovery period for a specific type of personal property.

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