Owning rental property comes with several benefits. Majority of your expenses are tax deductible as owning a rental is viewed as the same as owning a more conventional business. Tax season is only beginning, as a landlord, you should be knowledgeable of the many tax deductions you are eligible to receive. Curious about how current tax reforms have helped property owners? Read along as we discuss both the available tax write-offs and how those reforms have impacted landlords.
Many landlords are aware that they can write off their mortgage interest on rental property– which is generally their biggest stand-alone write off. But did you know that you may also write off interest on credit cards and other loans that were used to purchase, update, repair, or any other expenses pertaining to the property. For example, if you put maintenance repairs, renovation expenses, or even the community Fourth of July party supplies on your business credit card, you can also write off that interest.
Generally homes appreciate in value so it can be confusing for investors to understand why they are able to write off depreciation. So what makes depreciation a deduction? The Internal Revenue System lists residential real estate as a depreciating asset. Residential structures are considered useful for 27 and a half years, therefore you are allowed to write off 1/27th of the home itself annually. This means that you have to separate the value of the building from the value of the land it sits on. If you have not had an appraisal completed, your tax assessor’s database should give you an approximate value of both the structure and the land. You could also get your insurance agent’s cost estimate of the structure itself.
Seasoned real estate investors might opt to complete a cost segregation study. This will allow them to expedite the depreciation of certain aspects of your rental property before others. Examples of this include: furnishings, flooring, fixtures, appliances, and window treatments are usually completely depreciated within seven years. Exterior elements like paved pathways and patios, fences and decks, as well as landscaping are typically depreciated after approximately fifteen years. The remaining elements of the property, meaning the structure itself, is entirely depreciated at the completion of the 27.5 year period. While the process of completing a cost segregation can seem frustrating, it is important to under the benefits of having the study done as it will allow you to get more of your investment back sooner rather than later.
Employees & Contractors
When you pay anyone to take care or maintain your rental property, you are allowed to write off their wages or fees as a business expense. Landlords and homeowner associates are both permitted to do so. Be sure to hang on to your receipts as these are an essential part of keeping an accurate record of your expenses. Whether you are paying a teenager in the neighborhood $30 to mow your lawn or hiring someone to come repair a plumbing issue, write up a receipt and keep a copy for your records.
Have you recently launched a website? Print out information flyers or signs to showcases available rentals? Any marketing expense you incurred can be written off on your taxes. Advertising is considered a deductible business expense. Whether it is something as small as a newspaper ad, postage stamps for mailers, or the cost you pay to be a member of your local real estate development panel. More often than not, investment property owners, managers, and homeowners associations fail to include these expenses as they consider them to just be a part of their every day costs associated with running a business.Remember that the little things add up overtime.
Any time you leave your home to care for or maintain your rental investment, you can write that travel off on your taxes. Property owners are even allowed to write off travel that occurred as they searched for an additional investment property including prospective properties that are out of state. One restriction for this rule is that you must spend half of your time doing activities related to the property. This is yet another reason it is super important to keep a well-documented record book to keep track of your travel expenses.
Legal & Professional Services
Property managers, landowners, and HOA’s are all allowed to write off professional services that they have used while running their business. This can include fees such as attorney costs, hiring an accountant, management companies, and financial advisors. All of these are considered to be soft costs and are a part of conducting expenses . Make sure that you deduct them at the end of the year.
With tax season creeping in, it is valuable for landlords, property owners, and HOA’s to fully comprehend all of the tax deductions available to them. For this reason, we suggest reaching out to an accountant so that you can be sure that you are taken advantage of every write off that is applicable. Accountants can also assist you in making sure that you have proper documentation including receipts and bank statements that can verify the expenses you claim you had.
If you find it difficult to keep up with expenses, you could benefit from hiring a property manager. Veteran property managers are able to make the entire process easier which is nice when tax season rolls around. Real Property Management is here to help!
Contact us (866-500-6200) for more information today!
About Real Property Management Midwest
We are local property management experts serving Cincinnati, Dayton, Columbus, & Louisville. We manage Single-Family Homes, Apartment Buildings, and Condos. With years of experience, Real Property Management is Cincinnati, Dayton, Columbus, Louisville and Northern Kentucky’s #1 Property Management and Leasing Company.