When tax time comes around, I get a lot of questions about who gets the tax credit on ‘Subject To’ deals. By ‘Subject To’ deals, I mean property that an investor acquires by taking over the existing mortgage payments. As a result, the deed is transferred to the investor, but the original mortgage stays in the sellers’ names.
When it comes to taxes, it’s not the lender who decides who gets the tax credit. It’s actually the IRS and the IRS states that whoever makes payments on the mortgage loan gets to deduct the interest.
Therefore, if you’re the one who made the payments on the loan, all you have to do is show proof that you’ve done so to the IRS and you can take the tax deduction. You can show them the cancelled checks and get that tax break. You should also be able to take depreciation.
Tax breaks for rental property
One reason investors can build wealth over time is because of the tax breaks they get for having rental property. Now, I’m not an accountant, but I do know that there are plenty of favorable tax rules for property investors that aren’t there for other investment types.
Get yourself a good accountant so you can have him or her get you the best-case tax write-off scenario. You’ll be able to deduct mortgage interest, real estate taxes, amortize mortgage points for the length of the loan, write off all sorts of operating expenses, and more.
Essentially, what I want you to know is that tax rules for property investors are very favorable, and if you’re purchasing ‘Subject To’ deals, you get to take the tax credit. My advice is to set yourself up with a knowledgeable accountant for tax return time. Doing so will help you pay minimal taxes and continue to build wealth.