Are operating expenses tax-deductible? & Other Tax questions
Hello, I got some caffeine in my system so let me know if you do not follow.
1a) I know that Interest on the mortgage is deductible
1b) I know that property depreciation is tax-deductible
Total Tax Deductions = (Interest) + (Property Depreciation) + (?Operating Expenses?)
2) Are operating expenses tax-deductible?
-I define operating expenses as mandatory expenses that I need to run the rental. Ie property taxes, insurance, HOA fees and repairs.
-Side note 1: For improvements (not repairs) I know that the cost needs to be amortized over its life term. It's probably best if I ask my CPA about this because it varies per improvement. It seems like the detail to attention is not worth the benefit in this situation.
-Side Note 1b: With only 1 rental can I go to a normal CPA? When would I need to switch over to a Real Estate Accountant? I'll have all of this info in an excel spread sheet, what should I bring to make their job easier?
-Side note 2: If my bathroom tub is leaking and it causes water damage and I replace the whole thing does that count as an improvement or a repair?
-I replaced the 10+ year old carpet with vinyl, is that a repair or improvement?
Is the following formula the correct way to calculate depreciation?
[Gross Income] - (Total Tax Deductibles: Op Expense - Interest - Prop Depreciation) = Taxable Income
IE
[8000] - (4000) - (2000) - (1000) = $1000 Taxable Income
Assuming I have a tax bracket of 28%; $1000 * 28% = 280
I have to pay $280 of taxes on my $8000 rental income.
Extra Question:
How do you determine the market cap rate?
Do you have any favorite formulas or ratios that you look at before investing?
IE: ROI, Cap Rate, IRR