Common mistakes to avoid when filing real estate taxes

Filing real estate taxes can be complex due to the myriad of deductions and regulations involved. Often, real estate investors make errors that can result in overpayment, underpayment, or even an audit. Here are common mistakes to avoid when filing your real estate taxes.

1. Not Keeping Detailed Records

Accurate and comprehensive record-keeping is essential in real estate tax filing. Failure to maintain receipts, invoices, and statements can lead to missed deductions or difficulty substantiating your claims if audited. Ensure you keep organized records of all financial transactions related to your property.

2. Overlooking Deductions

Many real estate investors miss out on tax savings by not claiming all eligible deductions. These include interest, property taxes, insurance, maintenance and repairs, professional fees, and depreciation. Make sure you understand and take advantage of these deductions to lower your taxable income.

3. Incorrectly Reporting Rental Income

All rental income, including regular rent payments and other income like late fees or parking fees, must be reported. Overlooking or underreporting this income can lead to penalties if discovered by the IRS.

4. Misunderstanding Depreciation Rules

Depreciation provides a significant deduction for real estate investors, but it's often misunderstood. Properties are depreciated over 27.5 years for residential and 39 years for commercial real estate, but only the building, not the land, can be depreciated. Misapplying these rules can result in inaccurate tax filings.

5. Improperly Calculating Capital Gains

When you sell a property, any profit is subject to capital gains tax. However, the rate differs depending on how long you've owned the property. Misunderstanding this can lead to miscalculations and potential tax liability.

6. Going it Alone

Filing real estate taxes can be complex. Trying to navigate this without professional help can lead to errors. Hiring a CPA or tax professional experienced in real estate can ensure your taxes are filed accurately and that you're maximizing your deductions.

In conclusion, being mindful of these common mistakes can help you navigate real estate tax filings more effectively, saving you time, money, and potential hassle in the long run.

-Advise RE, PC