Real Estate Tax Deduction for Different Types of Real Estate Properties - Modesto Real Estate Agent Notes

Real Estate Tax Deduction for Different Types of Real Estate Properties:

Personal Use Property : Mortgage interest and property tax are deductible.
To check if mortgage interest is fully deductible, follow this Internal Revenue Services link.

Second Home / Vacation Home : Mortgage interest and property tax are deductible.
If a vacation home is financed, the interest expenses are deductible, if itemized deductions are filed.

Home owners cannot deduct any other expenses associated with operating and maintaining the properties for personal use / second home / vacation home.

Rental Investment Property : Mortgage interest, property tax are deductible, expenses attributed to the rental period are deductible, including property insurance (Insurance is not deductible for primary and second homes).

For investment properties, depreciation may be considered by some as the best real estate tax deduction of all. The method used for real estate is straight-line depreciation of the building. Depreciation can only be applied to the building and not land since land does not wear out over time.

For residential property, the depreciation period is 27.5 years.
For commercial property, the depreciation period is 39 years.
To see an example of how depreciation is calculated, visit About.com.

A property is considered a rental if it is rented for more than 14 days of the year. However, if a house is rented for less than 15 days each year, the rental income does not have to be reported.

For all three types of properties, mortgage insurance premium may be qualified as deductible mortgage interest. To find out more about mortgage insurance deduction, see IRS publication.

For more real estate information, definition of terms, visit Real Estate Encyclopedia, the Real Estate Wiki.

The California Real Estate Proposition 13 (1978) set the property tax to 1% of the full cash value of the property, plus any local bond assessments.


Disclaimer: the above information is not to be used as real estate investment advice or tax advice. Please consult your investment advisor or accountant if there is any discrepancy. It is my notes to clarify some of the taxes deduction rules - my notes on real estate tax deduction for a Modesto real estate agent.