Owning property comes with a lot of responsibility, as well as a lot of financial benefits, but is owning land actually a tax write-off?
Owning land can be a tax write-off. Some expenses and interest rates can be written off your taxes depending on the classification of your land, how much property you own, and how you use your land.
The prospect of owning land as a real estate investor comes with many opportunities and financial benefits. Real estate prices have shown a steady climb on the market and property investments tend to follow a reliable increase in dollar value over time. This makes real estate purchases one of the safest and most reliable ways to earn money. With that being said, owning real estate comes with a lot of responsibility, and its fair share of expenses, which is why you are going to want to take advantage of the tax write-offs that you have available to you. To help you understand how to save money on your land we are going to highlight some of the key ways you can utilize tax write-offs on your property.
The tax benefits that you receive on your land will be regulated by the Internal Revenue Service. To ensure that the taxes you are writing off on your property are within your legal rights, you should consult a tax professional.
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Writing-Off Taxes On Land
Regardless of whether you are a property owner or not, utilizing write-offs and tax incentives is a great way to save yourself money. However, as a landowner, it is absolutely essential that you take full advantage of tax benefits, as it can amount to thousands of dollars in savings on an annual basis.
Tax write-offs can be used in almost every type of land ownership classification, but the number of incentives that you receive will be dependent on a number of factors. The primary way that most landowners utilize tax write-offs is to deduct their expenses.
However, many landowners also write off taxes on expenses such as mortgage interest rates and even their property taxes. There are, however, some limitations to how much you are allowed to write off on these expenses. The threshold for the taxes that you are allowed to write off will change on an annual basis.
Land classifications are also a factor for writing off taxes on properties. In addition, you may also fall into a different tax category depending on how you conduct your real estate transactions. Let’s dive into the different ways you can write off taxes on your land.
Residential Tax Write-Offs
The most common land acquisitions in the United States are properties purchased for residential use. Residential properties are generally acquired through a mortgage or are paid for upfront through savings.
Property Taxes & Mortgage Interest Rates
There are some great tax write-offs that you can take full advantage of on your residence. One of the most common things to write-off of your residence is your property tax. With an average annual property tax amount of roughly $3,000 per household, you can save yourself some extra cash by writing this off.
You can currently save $12,400 as a maximum on your annual tax write-offs as a married couple, which means that your entire yearly property tax can be eliminated from your expenses.
In addition, you should review what your interest rates are on your home’s mortgage, if you have one. If your annual interest rates are not exceedingly high, you may be able to write off both your property taxes, as well as your mortgage interest payments.
Adequately maintaining a household is a lot of work and can not only suck up a lot of time but your finances as well. As a homeowner, you should always look at your land as an investment, as opposed to just a living space.
The reason for this is that the better you take care of your home, the safer your investment is and the higher the potential resale value of your property will be later on. With that being said, this sort of routine maintenance will end up costing a lot of money - especially for larger projects.
You will be delighted to know that you are in your full right to write off a number of different annual expenses that you spend on your home, which means that you can confidently approach the maintenance of your residence without always overthinking the expenditures. These are the common situations in which you can write off taxes on your residential property.
If you are finding that your home is in need of some internal or external repairs, you should take the time to fix what you can on your own. This could include changing your carpet, doing some repainting, changing your tiles, or fixing your patio area.
So long as you stay within your threshold of what you are allowed to annually write off on your taxes, all of these regular home maintenance tasks should be able to be claimed as expenses when you file your taxes.
However, not all of us are cut out for such a do-it-yourself approach for home maintenance. In this case, you may need to hire a professional to take care of your more technical home maintenance tasks for you such as plumbers and electricians.
You will be delighted to know that even the cost of hiring these maintenance professionals can technically count as a tax write-off.
Home Services & Utilities
Your home may have some additional expenses for your home that require you to hire additional services for upkeep.
These services may include having a gardener come to your residence once a week or perhaps a cleaner. The amount of money you spend on these home services can be written off on your taxes within your annual tax deduction threshold.
In addition, you may find that one of your biggest monthly expenses is your home’s utility costs for water, gas, and electricity. It is unlikely that you will be able to write off all of these on your annual tax deductions, but you can allocate a portion of your utility bills to be written off.
Business Tax Write-Offs
If you are a business owner, you know first-hand that expenses tend to hit you from all directions. This can greatly change depending on the type of business that you run, but it goes without saying that you can expect a lengthier monthly bill than a residential landowner.
The reason for this is that not only do businesses have to deal with a lot of the same expenses as residential property owners but they also have to pay for the regular upkeep of their business needs. Let’s explore some of the business expenses that business owners are able to write off on their annual taxes.
The expenses that a business has to deal with on a regular basis will vary. Some small businesses which are small mom-and-pop shops that sell a basic product probably avoid a lot of the expenses that larger and more dynamic businesses have to deal with.
With that being, any business owner can take advantage of tax write-offs to save themselves money.
Unless you are running an online business and do not have physical property, then the odds are that you have to maintain the building that your business is based in. This will involve a lot of the same upkeep and maintenance as a private residence such as plumbing, painting, and flooring.
However, businesses are often put under more pressure to keep their image more presentable, which generally means that they have to dish out more cash on their maintenance costs.
This is why business owners, in particular, should take advantage of the tax write-off opportunities available to them.
Whether your job involves you moving around constantly or you simply need to make casual trips to sustain your business, travel expenses add up.
If you find that your business requires that you personally or a staff member need to travel while on the job, you may be able to write these expenses off your taxes. You should sit down and assess what your business’ travel expenses are to see how much you spend on this work-related cost.
Here are some of the typical travel expenses you can expect to write off:
- Road Fees (tolls)
- Car rentals
After you have reviewed all over your business-related travel expenses you should have an overall estimate of how much you spend annually. What you should also not overlook is the maintenance of vehicles that are used specifically for work, as these maintenance costs can also be written off so long as they are used exclusively for the business you own.
As mentioned above, businesses have complex expenses, which will vary across the board, but as long as they are specifically related to your business, you should not have an issue writing them off.
Let’s take a look at some additional business-related expenses to write off on your taxes.
- Office Supplies - if your business requires official supplies, you will be able to claim these as deductions.
- Work Meals - a lot of businesses require a considerable amount of staff to be operational, which comes with its own share of expenses - including providing meals. If you are giving your staff meals regularly or even occasionally, you will be able to write off these expenses on your taxes.
A lot of property owners who have land that is vacant are perceived as having no expenses attached to their property. While there is significantly less responsibility that a vacant landowner has to attend to there are still considerable expenses attached to these types of properties.
Much like with most land acquisitions, vacant landowners still need to pay a property tax on their land. This annual property can be written off your annual taxes up to the allowed threshold.
With that being said, property taxes are not the only expenses that vacant landowners face. Depending on the conditions and features of the vacant land, there could be a number of different expenses that require routine maintenance and upkeep. These could include the following:
- Gardening - if your vacant land has a lot of vegetation you will likely need to maintain this by hiring gardeners periodically. In addition, if a vacant plot of land is located in urban environments, then there may be a city law that requires a certain level of upkeep, which costs the owner more money.
- Construction - you may have a development on the way or are beginning to establish a foundation for a project, regardless, you will likely need to hire professionals to tend to this.
- Cleaning - when a vacant lot is left without activity for an extended period of time, it is often the case that the property is in a much worse condition than when you left it. In this situation, you may end up having to pay for hired cleaners to come to tend to the property.
If you are a vacant landowner, you should calculate all of the expenses for your property over a year-long period to assess how much you will be able to write off.
Rental properties can seem a bit confusing for some, as the costs that go into maintaining the property may go into a grey area - unless specified within the lease.
The majority of the time that a rental property needs to be looked after the responsibility of taking care of the land falls onto the owner. However, there may be some situations where the tenant is responsible for damages done to the property, which violates their lease. In this situation, the tenant would be responsible for making payments for maintenance and repairs.
With that being, the majority of these expenses can be written off of your taxes. This is especially critical for the landowner to utilize, as their expenses for maintaining their rentals can be exceedingly high. Here are some of the typical expenses landlords can write off:
In addition, landlords can even write off the expenses that they used on advertising their rental to attract tenants.
Farmers within the United States are able to take advantage of a lot of benefits from the government such as subsidies and various tax incentives - including tax write-offs.
The United States Government encourages farmers to pursue this career path, as it is a highly valued profession within our society, which is why farmers gain so many benefits for doing their work. Just like any other business, farmers have to deal with their fair share of expenses as well.
With that being said in order to qualify for tax write-offs as a farmer, you have to be established as an official farm. The way this is determined is whether or not your farm is set up for business purposes. This generally excludes small farms that are set up for personal use.
However, farmers that run their land as a business are in full right to write off various expenses on their annual taxes. These tax write-offs will likely include the following:
- Land Maintenance - farmers have a responsibility to take care of their land like no one else. Since the ground they own is in many ways their business, they have to ensure that the soil is looked after and that it receives regular upkeep and checkups.
- Farming Supplies - to run a successful farm, you need a lot of supplies to do so. Farmers require large amounts of fertilizer, pesticides, seeds, and other supplies in order to make their farms operational.
- Farming Equipment & Maintenance - farmers rely on having equipment to successfully grow their food. This not only involves expenses that involve purchasing the equipment but it also means that this equipment needs to be looked after and regularly maintained. This adds costs to parts, materials, as well as labor.
- Fuel - almost all farming equipment relies on fuel in one way or another, which is a cost that adds up. This expense can be used for fueling everything from combines and tractors to the farmer’s personal truck.
- Operational Costs - there are a lot of various operational costs that go into farming such as creating irrigation and utility expenses.
These expenses are the common costs that farmers tend to write off on their taxes, however, depending on the type of farm, there may be additional expenses that are suitable for a deduction.
A common practice for protecting natural lands is to convert private properties that have environmental significance into conservation lands.
This is done through conservation easements, which is when a property goes through an appraisal process and is then officially certified by a land trust or the United States Government as being conservation land.
In this situation, the landowner must voluntarily give up certain rights to their property in order for the conservation easement to be in place. By giving up these developmental rights to their land, the value of the property drops significantly.
However, by getting involved in a conservation easement, the landowner is able to enjoy some great tax benefits, which go beyond deducting annual expenses. When private property is converted to a conservation easement, the landowner is officially donating the land to a land trust or the government.
Since this is technically a donation it can be written off of your taxes. This can prove to be a huge right-off for many landowners. With that being said, the amount that the landowner can write off is dependent on the overall value of the land that they donated.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling