February 14, 2023

The Real Estate CPA Explains: Insurance Escrow Deductions

Brandon Hall explains the correct way to deduct escrow payments for your rentals

Insurance escrow deductions key takeaways:

  • Payments into an escrow account towards property insurance and property taxes are not deductible
  • When the escrow account releases the payment funds towards the designated expenses, those payments are tax deductible

Hi, I'm Brandon Hall, a real estate CPA and CEO of Hall CPA, and today we're going to talk about when you can deduct insurance and property tax payments that you make on your rental property.

Now, deducting insurance and property taxes seems like a no-brainer, but it can trip people up and the reason for that is twofold.

First, when we acquire a property, we are typically going to prepay a few months of insurance and property tax expenses into our escrow account.

Second, as we make monthly mortgage payments, a portion of that monthly payment is actually for our insurance and our property taxes, and that amount is also going into an escrow account.

And so the question becomes: when I make these payments into my escrow account are they deductible on my taxes?

The answer is: No, they are not.

When you move money into an escrow account, those payments are not considered a tax deduction.

They will only be considered a tax deduction when escrow releases the payments for the designated expense.

So, when your escrow company actually pays your insurance premiums or actually pays your property taxes that is the time that those payments are tax deductible.

And so when you're doing your monthly bookkeeping it's a really good idea to create an insurance escrow and a property tax escrow account that you can track these payments against.

Brandon Hall is a real estate-focused CPA and the CEO of Hall CPA. Learn more about Brandon and his team over at https://www.therealestatecpa.com/

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