Real estate investors have an unlimited earning potential which translates to a potentially higher income and capital gains taxes. However, along with those sometimes high profits come a considerable amount of costs of conducting business. So as any astute businessperson would question, which of the business expenses are tax-deductible?
There are a plethora of legitimate business expenses that can be used to lessen an investor’s tax burden. One expense that confuses many real estate investors are the tax-deductibility of automobile expenses. One of the biggest misconception is believing that an automobile must be owned in the name of the business in order to claim the expense of use and upkeep on taxes, but this is untrue. Just as a real estate investor can use a portion of their private home for business purposes and deduct those expenses normally considered household costs because of the business’ occupation of the private space, one may do the same with a privately owned vehicle. Using an automobile (or motorcycle) for business use is warranted as tax deductible. Although commuting to and from one’s workplace is not a tax-deductible expense but any other business-related expenses concerning transportation can be deducted. Examples of acceptable business use of a private or business vehicle are transporting work supplies, showing properties to prospective buyers and traveling between investment homes. And in some instances commuting can be deductible as well. If the real estate investor normally works out of a home office and has to drive into a public office for a business meeting then that “commuting” expense is tax-deductible. Although the government allows for everyone to take a standardized deduction on their taxes to avoid the need to maintain these records, if more deductibility is available through itemized deductions, then the real estate investor needs to maintain copious notes on all business- related expenses and activities to include transportation.
To find out more about the tax-deductibility of real estate investment expenses be sure to consult with a certified public accountant and purchase a copy of Quick Start to Real Estate Investing.