Maximize Your Investment Property Tax Deductions in Baton Rouge

When it comes to investing in real estate, Uncle Sam can be both a friend and a foe. But if you’re smart about it, you can take full advantage of investment property tax deductions to boost your bottom line.

For real estate investors in Baton Rouge, the U.S. tax system offers several opportunities to reduce your taxable income. However, many new investors miss out on key deductions that could significantly impact their profitability. Here’s a breakdown of some common tax deductions Baton Rouge investors should know about.

Income Sources You May Be Able to Deduct

Repairs or expenses paid by your tenants count as income. For example, if a tenant covers an emergency repair—like replacing a water heater—you can deduct that expense.

In some cases, tenants might barter for a rent reduction by providing services or repairs. These contributions can be deducted as long as they’re claimed as income and charged at fair market value. Be cautious—your deductions need to be reasonable. You can’t claim something like fixing a light switch in exchange for three months of rent as a legitimate expense.

Security Deposits

Security deposits generally aren’t taxable since they’re intended to be returned at the end of a lease. However, if a tenant forfeits their deposit—say, by breaking the lease—and you use it for repairs, you can claim that deposit as income. The cost of repairs, of course, is also deductible.

Make sure your property manager or accountant handles security deposits correctly to avoid unnecessary tax liabilities. You don’t want to end up paying income tax on deposits that will just be refunded when the tenant moves out.

Common Investment Property Tax Deductions

1. Mortgage Interest
   The interest portion of your mortgage payments is 100% tax-deductible. Your lender will provide you with an annual statement detailing the amount of interest paid.

2. Travel Expenses
   Any travel related to managing or maintaining your property—whether it’s to make repairs, show the property to potential tenants, or collect rent—is considered a business expense and can be deducted.

3. Other Deductible Expenses
   Investment property owners can also deduct a range of expenses, including property taxes, insurance premiums, tax return preparation costs, lawn and garden maintenance, and losses from theft or natural disasters (like floods or hurricanes). Legal and professional services are also deductible.

4. Depreciation
   One of the biggest tax advantages of owning investment property is depreciation. You can deduct a portion of the property’s value each year, even though the property is likely appreciating in market value. Depreciation can be a bit complex to calculate, so it’s best to consult with a qualified Baton Rouge accountant.

5. Home Office
   If you run your real estate investment business from home, your home office may be deductible—provided it meets the IRS’s minimum requirements. Talk to your tax advisor to see if you qualify.

Maximize Your Tax Savings

By leveraging all applicable deductions, you can reduce your tax liability and increase your profits, freeing up capital to reinvest in new properties. Additionally, new tax laws may offer even more opportunities for savings, so it’s important to stay in touch with your financial advisor or CPA. They’ll ensure you’re maximizing every tax benefit available to Baton Rouge property owners.

You can also get plugged in with a group of investors here in BR and see how we’re maximizing our tax savings. Join us on the 1st Tuesday of every month at Red Stick Social at 6:30pm. We look forward to seeing you there!