Sourcing deals, discovering reliable contractors and staying up on current renovation and rehab trends is tricky enough.  Finding tax deductions for real estate investors shouldn’t add to your stress.  And that is where we come in to help!

Below you’ll find tax deductions for real estate investors with the forms you’ll need and plain english explanations.  We’ll continue to update this guide so it is as current as we can make it, and so you’ll stay in the loop on how to save when it comes to your taxes.

If you know someone that will benefit from these real estate investor tax deductions, feel free to share this post with them on social media or in a newsletter.

Real Estate Investor Tax Deductions Guide:

• 1031 Exchange – Capital Gains Tax Savings
• Rental Property Depreciation
• Client Gifts
• Self Employment Taxes
• Self Employed Health Insurance

1031 Exchange – Capital Gains Tax Savings

When you invest in and subsequently sell property, any profits made from that transaction are considered capital gains and become part of your taxable income.

However, Section 1031 U.S. Internal Revenue Code, often referred to as the 1031 Exchange, allows investors to avoid capital gains taxes when they use the proceeds from the sale of an investment property to reinvest in another property.

To leverage this deduction, you must identify a like-kind property of interest within 45 days of selling the previous property and invest in the new property within 180 days.

Tax forms requirements:

• Form 8824
• Form 4797/Schedule D
• Form 6252

Click here to read about the ins and outs and how to use a 1031 exchange.

Rental Property Depreciation

Depreciation is often described as the loss of value in a property, particularly due to wear and tear over time.

Real estate owners and investors who choose lease or rent property to consumers or businesses can leverage depreciation as a deduction, but the nature of it shifts slightly from the general definition of depreciation.

In this case, property owners and investors can deduct the costs associated with purchasing and improving a rental property.

To deduct depreciation, you must own the income-producing property and the property must be available and ready to rent.

Tax forms requirements:

• Schedule E (Form 1040/1040SR)
• Form 4562

Client Gifts

Though the cost of client gifts can be deducted, business owners can only deduct up to $25 per gift, even if the gift exceeds that amount. If you intend to deduct these types of gifts, it’s important to keep detailed records that support your claim.

Keep in mind that the Tax Cuts and Jobs Act (TCJA) adjusted tax code regarding entertainment deductions. If you’ve claimed entertainment as gifts in the past, you may need to update your approach.

Now, entertainment gifts are only considered as such if you do not attendant/participate in the event with the client. If you attend/participate, it is considered an entertainment expense and cannot be deducted.

Potential tax form requirements:

• Schedule C (1040/1040-SR) to claim as a sole proprietor
• Schedule E (1040/1040-SR) to claim as partnership or s corp

Property Losses (passive income)

Under the U.S. tax code, rental income is considered passive income, and thus losses from that income are passive losses.

Basically, if your real estate property or investment is a source of losses, you may be able to deduce those losses under certain circumstances.

If your AGI is $100,000 or less, you can claim up to $25,000 in property losses. If you make between $100,000 and $150,000, you may still be able to collect but deductions will be gradually reduced.

It’s also important to note that, according to the IRS, property loss deductions are not available to anyone who “[holds] any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or trust.”

Potential tax forms requirements:

• Form 8682
• Schedule E (Form 1040/1040-SR)
• Schedule K-1 (1040/1040-SR)
• Form 4835 (Farm rentals)

Self Employment Taxes

Self-employment tax consists of social security tax (12.4%) and Medicare (2.9%). For some self-employed individuals, that can turn into a considerable tax bill each quarter.

Fortunately, self-employed real estate professionals can deduct 50% of their self-employment tax.

Potential tax form requirements:

• Schedule SE (Form 1040/1040-SR)
• Schedule 1 (Form 1040/1040-SR)

Self Employed Health Insurance

Self-employed individuals that report a net profit can deduct their health insurance premiums, including those paid to cover premiums for their spouse, child/children (under 27), or other dependents. This includes both medical benefits and dental benefits. If you don’t report 100% of your premiums paid, then you may be able to include medical expenses as itemized deductions.

Potential tax form requirements:

• Schedule C (Form 1040/1040-SR)
• Schedule K-1 (Form 1065)
• Schedule A (Form 1040/1040-SR)

Covid-19 is something we are taking very seriously.  That’s why we prepared for virtual and in person closings years ago!  It is how we can remain open for business in Virginia, Maryland and DC while taking extra precautions for both you and your clients.  

Here’s How:

Virtual Closings!  

Almost all of our processes can be done securely and online while following ALTA best practices.

• Secure and encrypted file transfers
• Utilizing Notarize.com or private and recorded video conferencing in Jurisdictions that is allowed in
  • ALTA is working on passing an emergency bill to allow RON (Remote Online Closing) for the entire USA this week.
• Using e-recordings 
  • Our underwriters are offering GAP Coverage in counties where the courthouses do not provide e-recording, so we can close and fund on time. 

The process is simple:

1. We email each party the closing documents with instructions.
2. The parties will submit all needed documents like a license and ID.
3. Next a video conference call is scheduled so we can record, document and verify identities.
4. Electronic signatures and notaries finalize the deal.
5. Post closing we will distribute the documents virtually or with print out options.  Whichever you and your clients prefer.  

If you prefer in person closings, we can accommodate this too!

The office is being sanitized daily.  we will also sanitize conference tables, chairs before and after each closing. We provide you with new pens before you and your clients enter the conference room.  

Your health and safety are our primary concern, and we will do our best to take care of you.

Let us know how we can help you with title insurance, escrow and closing services at any of our Maryland, Virginia and DC locations.

Call us at (703) 934-2100, or write to info@atgtitle.com and we’ll be ready to help!  You can also fill out the form on the upper right hand section of this page.

You’ve closed on your new home and gotten the keys. You’re now a property owner! Or are you? Even if you’ve had a clear title search, these sneaky hidden issues could affect the title, creating issues that keep you from selling or even affect your legal ownership altogether. They are rare but they do happen, and you should be aware that problems like these might come up even after your deed has been recorded.

1. Undisclosed But Recorded Party Wall

Row homes that were attached by a common wall, also called a party wall, were a very popular construction style in the early 19^th century. Each owner has an easement for their side of the wall and there’s usually a recorded covenant or declaration of the provisions covering the party wall which are attached to the title.

If changes are made to the home, for example combining units or removing the party wall but the recorded declaration still exists, it could cloud the title and cause headaches later on when you try to sell.

2. Deed Signed By Mistake

How could someone sign a deed by mistake? Well, if they didn’t know what they were signing or thought they were signing something entirely different and never meant to transfer their property, they could have a claim of non est factum (Latin for “not his/her deed”), which would [Read more…]

It’s time to close on your dream home, and you’ve just sent your down payment and closing fees to the escrow company to close. You sit down to finalize the deal and that’s when you’re hit with the news that the funds never arrived. Your money has been stolen by a sophisticated scam that tricks homebuyers into wiring money to a phony account where it’s whisked away overseas. This doesn’t have to happen to you.

With a few simple prevention measures, your settlement fees will arrive in escrow safe and sound. Here’s what you need to know to be a savvy homebuyer, protect your down payment from wire transfer scams, and what to do if you’ve been a victim.

Know How the Hacked Email Wire Transfer Scam Works

Knowledge is power and understanding the methods criminals use to trick people into sending them money is the first step to keeping your funds safe.

1. The scammers get access to the email account of a real estate or title agent, hacking the email or stealing the password using a phishing scheme. Now they can log in and read every email that’s being sent.
2. They monitor the emails looking for a victim who will be closing soon and is expecting to send money for settlement fees to the escrow account. Because they’ve been reading all of the correspondence, they know lots of details like what the transaction amount should be.
3. The scammers send a fake message to the homebuyer from the hacked email. They include bank account and routing numbers that go to their own bank account instead of the correct escrow account at the title company.
4. The homebuyer unknowingly wires the money for the closing fees into the wrong account. Wire transfers are instant and final, and often the money is not recoverable. The down payment is gone, and the homebuyer loses the house and often their entire life savings.

The trick to this scam working is that the email comes from the real account of the closing agent or real estate agent, and the criminals know exactly when to send a perfectly timed email with wire instructions.

Practical Tips to Protect Your Down Payment

Fortunately, keeping your money safe from wire transfer fraud is straightforward and just a few extra steps can prevent you from becoming a victim.

• Find out ahead of time how the closing agent will communicate sensitive financial information to you. They should call and talk to you, or use a password protected system.
• Never trust banking information sent by unencrypted email no matter who sends it. Bank accounts, credit card information, and Social Security numbers should never be emailed because it’s not secure. If someone sends you routing and bank account numbers this way, that’s a red flag.
• Always verify in person or by phone. You should speak to the title company or real estate agent and get the wire transfer information directly.
• Don’t click the phone number in the email, because sometimes scammers include their own phone number, and “verify” the transaction when you call. . Instead, look up the number on the company’s website or business card and dial the number yourself.

Wire A Day Before Closing

Don’t wait until the day of your closing to send the money to the title company. Sending your funds a day or two early helps avoid delays, and helps prevent last minute surprises at your closing.

Why a whole day early? Many banks only send wires out at a specific time, and sometimes they’re in a different time zone. You don’t want to miss the cut-off time or have your deposit arrive after the bank’s end-of-business, meaning the transaction won’t be sent or credited until the next day. Sending your transfer ahead of time also gives you a time cushion in case there’s a problem.

What To Do If You Are Scammed

If you are a victim of wire transfer fraud, there’s still a chance you can recover some of your funds. Immediately call your bank and see if they can recall the transaction. Call the bank you sent the money to as well. They may be able to freeze the account and keep your money from being transferred out of it. Let your title company know what happened so they can be on the lookout for similar schemes, and alert the party whose email was stolen so they can lock out the hackers.

Get the authorities involved, whether you’re able to recover your money or not. Wire fraud falls under the jurisdiction of the FBI, and you should call them or contact their Internet Crime Complaint Center to file a complaint. You should contact your local police department and file an official report. Call the FTC at 1-877-FTC-HELP and report what happened, so they can try to get it shut down and add it to their database.

Communication Is The Best Prevention

Having open communication with your closing agent goes a long way to help keep your transaction safe. You should be able to pick up the phone and talk to someone in person, and they should confirm with you that the money has arrived safely. Make sure you pick a title company you can trust to handle your closing.