Listen, it can actually be a lot of fun talking about taxes.
Before you boo us out of your party, hear us out.
First of all, this is Florida. That means we have a tax-friendly environment. There is no state income tax. There’s no estate tax or inheritance tax at the state level. Yes, you have to pay your federal income taxes and yes, your rental income does have to be declared.
But there are also a lot of tax deductions available to Orlando real estate investors. Let’s not forget that at tax time.
In case you are at risk of forgetting that we’re talking about tax breaks and tax benefits today. Remember, we are expert Orlando property managers. We’re not accountants. We’re not CPAs. You should definitely talk to your own tax professional before you make any money moves that involve the federal government.
As property managers, however, here’s the good news we can deliver around taxes.
Key Tax Breaks for Orlando Real Estate Investors
Let’s make sure you’re taking all of the deductions to which you’re entitled. Here’s a brief list of what you don’t want to miss.
- Mortgage Interest Deduction
One of the most significant tax benefits for real estate investors is the mortgage interest deduction. You can deduct the interest paid on your mortgage from your taxable income, reducing your overall tax liability. This deduction applies to loans used to acquire or improve rental properties. Make sure you have an accurate statement that shows how much interest was paid on your mortgage or any type of loan or money borrowed.
- Depreciation
Depreciation allows you to recover the cost of your investment property over time. The IRS permits you to depreciate residential rental properties over 27.5 years. This means you can deduct a portion of the property’s cost each year, even if the property’s value is appreciating. This is a pretty generous timeframe by IRS standards, so make sure you’re leveraging this important deduction. It can make a big difference in what you’re paying.
- Property Tax Deduction
What about those property taxes you pay to Orange County? Property taxes are a necessary expense for real estate investors, but they can also be a valuable deduction. You can deduct the property taxes you pay on your rental properties from your taxable income, further reducing your tax burden. A lot of property taxes have gone up for Orlando investors, thanks to higher property values. Make sure you’re working off an accurate tax bill.
- Operating Expense Deductions
From maintenance and repairs to property management fees, many expenses associated with owning rental properties are deductible. Common deductible expenses include utilities that might be paid on your property as well as insurance premiums, advertising costs to find a new tenant, and legal and professional fees. If you’ve ever thought about hiring a property manager in Orlando, but you never did because you were worried about the management fees, here’s some good news. Those fees are deductible. They practically pay for themselves.
- Pass-Through Deduction
Here’s one that isn’t talked about a lot but can bring some real relief to investors in Orlando. Under the Tax Cuts and Jobs Act, many real estate investors can benefit from the Qualified Business Income (QBI) deduction. This allows eligible investors to deduct up to 20% of their rental income, providing a substantial tax break.
- Capital Gains Tax Benefits
When you sell a property, you may be subject to capital gains tax on the profit. However, there are strategies to minimize this tax. The most important and well-known way to defer your capital gains tax is by utilizing a 1031 Exchange. By reinvesting the proceeds from the sale into a similar property, you can defer paying capital gains tax. There’s also the long-term capital gains tax rate to consider if you’re an investor who has been in the game for a while. Holding a property for more than a year qualifies you for long-term capital gains tax rates, which are typically lower than short-term rates.
Maximizing Your Tax Benefits in Orlando
Now that you know what you’re entitled to when it comes to filing taxes as a real estate investor, let’s make sure you are prepared to fully leverage these tax breaks. Remember our first recommendation: talk to a professional. You’ll also want to consider the following tips:
- Maintain Accurate Records
Keep detailed records of all income and expenses related to your rental properties. This will make it easier to claim deductions and defend them in case of an audit. No one wants to show up for an audit empty-handed. We like to use digital files, but paper files have a place, too. Ideally, you’ll have all the information you need easily accessible.
- Consult a Tax Professional
It’s true, we never get tired of giving this advice. Real estate tax laws can be complex and subject to change. Working with a tax advisor who specializes in real estate can help you ensure compliance and maximize your tax benefits.
- Plan for the Long Term
Strategically planning your investments can help you take advantage of tax benefits like depreciation and capital gains tax deferral. Consider your long-term financial goals and how your real estate investments fit into them.
Owning real estate in Orlando offers not only the potential for rental income and property appreciation but also a range of valuable tax breaks and benefits. By understanding and leveraging these advantages, you can enhance your investment returns and build substantial wealth over time.
Let’s get you ready to maximize your real estate investment returns. We know that talking about taxes isn’t always a lot of fun. You didn’t get into real estate investing because of taxes, probably. But this is one of the advantages to owning rental properties in Orlando. Why not make sure you’re leveraging every possible benefit?
We invite you to contact us at Park Avenue Property Management. We work with landlords and investors with properties in Celebration, Orlando, Lake Buena Vista, Kissimmee, Maitland, Altamonte Springs, West Palm Beach, Tampa Bay, and throughout Central Florida.
