Top tax deductions for investors

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If you are starting your investment journey, you may not be aware that there are many different kinds of tax deductibles you can enjoy. In simple terms, this means you can deduct certain costs you have incurred from the tax you pay on your investment income.

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Of course, exactly what you are entitled to will depend on the type of investment and where you and your investments are based, but here are just a few examples of what you could be entitled to.

Real estate

Real estate is one of the leading ways to invest in 2022, and if you have invested in a rental property, you will be delighted to know there are several tax deductions available for landlords. If you have purchased the property with a mortgage, you might deduct mortgage interest as long as you are paying off the loan- something which can be handy in times of high rates.

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Another deductible is insurance, which many landlords take out to cover any possible damage or loss of income related to their rental property. Premiums can be high, particularly if you want broad coverage for fire, theft, and natural disasters, as well as liability, so being able to have it as a tax deduction is a great benefit. You can also claim certain repairs and ongoing maintenance, depending on what is being carried out and why.

Last but not least, you may deduct the cost of personal property used in the rental unit (like whitegoods), employee wages (such as a property manager or maintenance worker), and even depreciation which is typically around 1/27 of the property value each year.

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General expenses

There are many different kinds of deductions that can fall under general expenses; some may apply to you, and others may not. For example, you may claim any fees incurred for management and retaining professionals who oversee and advise you on your investments.

This can also be extended to the cost of specialist publications, journals, and subscriptions.  Sometimes, you may also be able to deduct expenses such as internet access, some travel linked to your investments, the decline in the value of your computer or laptop, and even your internet bill.

Typically, you cannot claim deductions for fees payable to those who drew up your investment plan or for borrowing money to purchase shares, securities, or similar.

Interest expenses

You can also get a dedication for your investment interest expenses. In simple terms, interest expenses refer to the interest paid on money you borrow to purchase a taxable investment. For example, this could be a margin loan to buy stock in your brokerage account.

In this case, the interest on the margin loan would be tax deductible as long as the loan was not used to buy an investment like a municipal bond, which is already tax-advantaged. Typically, the total you can deduct from your taxes is limited to your annual investment income for the year, with any ‘leftovers’ being carried over to the next tax year.

Figuring out exactly how much can be deducted can be rather complex, but with a professional to assist you (which could also be tax deductible), you can ensure you work it out to the most advantageous level.

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