10 Last-Minute Real Estate Tax Tips to Know Before Filing

With the April 18 deadline quickly approaching, you do not want to miss out on these last few real estate tax tips and tax strategies that you can use to maximize your deductions.

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Being classified as a real estate professional can make a huge difference for you this tax season. If you fall into this category, you won't be subject to the passive activity loss limits, and you can even deduct rental losses against your ordinary income. To be considered a real estate professional:

• More than 50% of the personal services you performed in all trades or businesses during the year must be in real property trades or businesses in which you materially participate.
• More than 750 hours of personal services in real property trades or businesses in which the taxpayer materially participates.
• Meet state licensing requirements, if there are any.

ALSO READ: Real Estate Taxes: Your Complete Guide

Many real estate investors do not realize that there are a number of deductions that they can take advantage of, like the deduction for travel and vehicle expenses. If you use your vehicle in connection with your real estate activities, you can claim either the standard mileage rate or the actual expense you incurred for putting your vehicle to work.

The standard mileage rate for 2021 is $0.56. So, that means you can claim $0.56 per mile for business use if you claim the standard mileage rate.

If you have any actual expenses to deduct, make sure you have all records and receipts. This is the only way to substantiate your tax positions on your tax return.

If you rent your property out to tenants, you should be aware that all types of rental payments must be included in your gross income. The IRS states that gross income is income from whatever source derived, and when it comes to rent received, the rent payments can take many shapes and forms.

The following types of payments should be included as part of your gross income:

• Advanced rent payments.
• The value of service in lieu of rent.
• Property in lieu of rent.
• Expenses paid by the tenant.
• Any security deposit that has been retained.

ALSO READ: What Counts as Rental Income?

If you are a real estate investor, you probably are aware that you can claim a deduction for mortgage interest expense, but did you know you can also claim a deduction for any interest expense you pay in connection with owning your rental property?

So, if you pay interest on a credit card or loan connected to your rental property, you can claim a deduction for these expenses during tax season.

If you paid any fees to homeowners associations in connection with any rental properties or real estate you own, you are in luck: You can claim any amount paid as a business expense this tax season.

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If you have completed a section 1031 Like-Kind Exchange during the year, you will need to report this exchange on IRS Form 8824. Reporting the exchange on your return is part of properly completing the exchange process. Even if you have a failed exchange during the year, you may need to report it on your return.

ALSO READ: What Is a Tax Shelter?

If you paid property taxes to your state or local governments during the year, you are in luck. The IRS allows you to claim a deduction for state and local taxes paid up to $10,000. If you own multiple properties, be sure to keep track of all the property taxes that you have paid so that you do not miss out on this huge deduction.

You may not know it, but you could be eligible for the Qualified Business Income Deduction (QBID), which is the last deduction before calculating your taxable income.

The figure for QBID is the lesser of 20% of qualified business income (QBI) plus 20% of REIT dividends and qualified publicly traded partnership income (PTI), or 20% of taxable income computed before the QBID minus any net capital gain.

ALSO READ: A Beginner's Guide to the Qualified Business Income Deduction (QBI Deduction)

If you have already completed your tax return and noticed an error on your Schedule E or Schedule C and want to correct it, you should file another original return. Unfortunately, you will need to mail the second return to the IRS. If you notice there are errors after the April 18 deadline has passed, you will need to file an amended return, IRS Form 1040-X.

If you took advantage of the real estate boom in prior years, you may have a balance due to the IRS. If you need help with the balance or an installment agreement, the IRS is offering in-person assistance on Saturday, April 9, 2022, from 9 a.m. to 4 p.m. (no appointment required). This is a great time to work out any prior years' tax problems before the April 18 filing deadline.

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The April 18 deadline is quickly approaching. Do not forget to use the tips as part of your tax strategy to maximize your savings.

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