As we head into the holiday season, no one wants to think about income taxes. But tax season is just around the corner, and since income property investments qualify for a long list of deductions, there are some changes to the tax code for 2013 that are worth planning for.
One of the benefits of investing in income property is the tax breaks available to investors, ranging from mortgage interest to home office supplies. While that basic package remains in place, every tax year brings some changes to the existing regulations that can affect property owners, whether they own just one rental property or many.
Among the changes are amended tax rates for very high-income taxpayers and new qualifications for the alternative minimum tax, which are not directly related to investments. But other changes aimed at investors, business owners and entrepreneurs could affect the way landlord/investors report income and claim deductions this year.
The Medicare Surtax on Investment Income
The Medicare surtax on investments has been around for a while. But the Affordable Care Act added a new surtax of 3.8 percent on some investment income that exceeds a specified threshold. For purposes of the surtax, net investment income is defined as interest and dividend income, as well as rental income from investment property. and gains from the disposal of certain kinds of property.
The Adjusted Gross Income threshold for the surtax is relatively low, at $250,000 for joint returns, $125,000 for spouses filing separately, or $200,000 for a single head of household. To avoid the tax, income tax specialists advise finding ways to lower the AGI before the end of the year to an amount below that thresh hold.
For qualified assets including real estate acquired and in use through December 31 2012, the new code allows an additional first year depreciation allowance of 50% — but that’s limited to only new assets. The bonus depreciation allowance expires on December 31 2013, though – so it’s wise to get assets working before the end of the year in order to qualify for the deduction.
Other tax breaks for investors, such as the mortgage interest deduction and the usual write offs for repairs, maintenance and depreciation, as well as an investor’s own home office, still apply. Real estate experts advise investors and entrepreneurs to consult a qualified tax professional for the latest information and help in claiming all possible deductions. But the long list of deductions and exemptions available to real estate investors offer even more reasons to build wealth in income property, as Jason Hartman recommends. (Top image: Flickr/Flikkesteph)
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