Tax Credits for Real Estate Investing

Your taxable income falls within a certain tax rate that determines the amount you owe to the Internal Revenue Service. You can reduce this amount by claiming tax credits for which you qualify. A tax credit reduces your tax liability, which reduces the amount owed to the IRS. As a real estate investor, you may be able to claim several credits for improving the quality of building structures. You may also claim energy efficient credits for an owner-occupied property.

Investment Credit

Using Form 3468, you can claim the investment credit. You must provide the physical address and a description of the property. Use this form to claim the rehabilitation credit, energy credit, advanced coal project credit and the advanced energy project.

Rehabilitation Credit

The rehabilitation tax credit covers the costs of renovating historic structures and pre-1936 buildings. The credit only applies to income-producing properties. You can claim 10 percent of the renovation costs of buildings built before 1936 and 20 percent of the costs for certified historic buildings. For certain disaster areas, you can claim up to 13 percent of the renovation costs for pre-1936 buildings and up to 26 percent for historic buildings. A certified historic structure is one that's listed in the National Register of Historic Places or one that has been approved for certification by the secretary of Interior as a historic structure and located in a historic district. An application for certification must be submitted to the National Park Service or a State Historic Preservation Office. State Historic Preservation Offices oversee the preservation of historic communities and properties in each state and help the owners of historic buildings apply for national historic certification.

Low Income Housing Credit

Over a 10-year period after a residential low-income rental building has been placed in service, the owner may claim the tax credit and reduce his taxable liability by one dollar for each dollar that is available under the low income housing credit. The amount of the tax credit equals the amount that is subtracted from your tax liability. You can claim the costs associated with the housing development of a qualified low income building. The building must also receive a housing credit allocation from your state housing credit agency. The amount of the credit is also limited by the state housing credit ceiling.

Residential Energy Credit

You can claim the residential energy credit for an energy efficient project that you completed on a nonbusiness property. For example, you can claim the credit for the energy costs associated with your primary home. This 30 percent credit covers the costs for solar energy, solar water heating, wind energy and geothermal heat energy efficient projects.