Year-End Real Estate Tax Tips

Dec. 16 -- When man first came down from the trees and out of the caves and began to build his own home, the benefits were immediate and tangible: Shelter from the elements, safety from predators, a place to raise a family, a chance to become part of a society. What our ancestors probably didn't anticipate was what a great tax deduction a home would one day become.

As any smart American home owner knows, a home represents one of the best ways — if not the best — to keep your money in your bank account and not in Uncle Sam's.

But the Internal Revenue Service isn't exactly hanging bells around its neck to help you find these tax breaks. You have to look for them. Fortunately, some breaks are so significant that they are hard to miss — such as the mortgage interest deduction, whereby home owners can deduct from their income the interest they pay on their mortgages. Many other tax breaks, however, are frequently overlooked, which is a shame because they're often a simple matter of planning and timing.

We asked several tax attorneys for suggestions of what home owners can do right now to lighten their tax bills come April. We looked for suggestions that could be applicable to the amateur real estate investor, who may only be interested in the tax benefits he can gain from his primary house, as well as the serious investor, who may own many rental properties.

It's All In the Timing

Most of our tax experts' advice boiled down to one basic premise: Defer income on your real estate as long as possible, and accelerate expenses as quickly as possible.

"Most people have the idea that if they can get a bigger deduction now, they'll take it and they'll worry about next year when they get there," says Scott Estill, a tax attorney in Denver, Colo.

That said, Estill suggests that one simple way to lighten your tax burden in the coming year is to delay the receipt of payments on rental properties until after the first of the year.

"If you collect rent on Jan. 1, the income from that payment won't be taxed until next year," Estill says.