Tax Deductions for Land Held for Investment

For starters, all of your interest and property taxes are completely tax deductible. Plus, you don't have to file them on Schedule A with your other itemized deductions. Since you file them on a Schedule E, you still get to claim the expenses even if you don't itemize your personal deductions or if you're subject to the Alternative Minimum Tax.

Everything you spend to own and take care of your land is a write off. Deductible expenses include how much it costs you to drive their just to see it's still in good shape. If it's been vandalized, whatever it costs you to clean it up is a write off too. So are fees for cleanup services, advertising for tenants, and just about anything else. These expenses can cancel out any income you earn from your land.

The IRS won't let you depreciate the land itself, but you can depreciate any improvements you made to the land. If you've built roads, graded or excavated, it might be depreciable. You just need to have done the work to support buildings that are, or will be, on your land. Furthermore, the IRS lets you depreciate all of this work over a 15 year period. This is much faster than regular real estate depreciation that spans 27.5 or 39 years and gives you bigger write offs.

After you subtract all of your expenses from the land investment income, if any, you might end up with a loss. You can use that to offset income from other real estate investments right on your Schedule E form. If your adjusted gross income is $100,000 or less, you can also claim up to $25,000 as a "passive activity loss" against your other income. The IRS takes a $1 loss for every $2 of income, though. If you make more than $150,000 in AGI, you can't claim any PALs.