Rental Property Real Estate Tax Deductions
Craig Acord

Individuals who purchase real estate rental properties, who actively participate in the decision making process, such as determining who the tenants will be and what repairs should be made, may be able to reduce their taxable income by up to $25,000 per year under existing tax laws. The active real estate investor may deduct up to $25,000 per year on schedule E for such items as depreciation, negative cash flow, maintenance, repairs, interest, taxes, and trips to the property. This could effectively reduce the investor’s taxable income by as much as 25,000. The potential savings in the 28% bracket would be $7,000. An investor in the 31% tax bracket would save $7,750. The savings would even be greater if the investor has a state income tax, as most state income taxes are based on the federal tax returns, which would be reduced also.

The $25,000 annual tax deduction is the maximum allowable each year no matter how many investment properties are owned; this amount is reduced for taxpayers who have over $100,000 in adjusted gross income. For every $2,000 over $100,000 of adjusted gross income, the $25,000 limit is reduced by $1,000. If, for example, the investor’s adjusted gross income was $110,000, he would only be entitled to a maximum of $20,000 per year. The entire $25,000 would be eliminated for the investor who has an adjusted gross income of $150,000. Hence, these investors would be buying the real estate investments for the potential appreciation and/or income which they can generate.