Tax Mistakes Real Estate Investors Should Avoid

Right now, the real estate market is hot. With properties selling quickly, there is money to be made by investing in real estate. Unfortunately, there is also money to be lost, especially to inexperienced investors starting a real estate business.

The Cost of Common Tax Mistakes

Making a mistake or two in your taxes can take a toll on your business. Whether you invest in properties to rent or properties to flip, costly errors can quickly eat up your profit.

Common Tax Mistakes Real Estate Investors Make

Most tax mistakes commercial real estate investors make involve overpaying taxes. Here are some common mistakes investors make.

1. They fail to deduct business and real estate expenses. Many new investors use their personal funds to fund their real estate investments. Many people are unaware that they can use their personal income to pay business expenses and still deduct those expenses.
2. They fail to correctly track and take deductions. You cannot claim deductions if you lack proper documentation. Keep careful records and use a financial advisor if necessary.
3. They create a legal corporation and fail to use it. If you form a corporation to operate your real estate business, make sure the corporation takes the income and not you. Your business will not qualify for maximum tax deductions if you direct its income to your personal name.
4. They fail to take the home office deduction. Some people are afraid to take the home office deduction because they think it will invite an audit. But this is no longer a valid fear, as many people work from home these days.
5. They fail to deduct business and real estate expenses. Many real estate investors fail to take allowed deductions for legitimate expenses. You can deduct expenses such as:
   1. Maintenance supplies
   2. Phone bills for your business
   3. Travel expenses
   4. Equipment depreciation
   5. Marketing expenses
   6. Wages paid to contract workers for property improvement
6. Make late tax payments. Some investors think that filing an extension gives them an extension on their tax payments. In fact, filing an extension gives you more time to file your taxes, but does not change the due date. If you pay your taxes late, you may incur late fees and penalties.

Contact MKS&H

At MKS&H, our consulting services help businesses reach their highest potential. We can advise commercial real estate investors on strategies to avoid these common tax mistakes. Contact us today to schedule a consultation.