Tax breaks?

8 Replies

Good afternoon everyone! I'm new to REI and was wondering if any of you would share with me any tax breaks that you know of or implement in your business. I don't know if it matters, but my goals are to buy, reno and rent out long term. Thanks in advance for any help!

Hello @Ross Ellington  

Without understanding your unique situation, it will be somewhat pointless to describe the tax breaks available. I'd suggest getting an accountant/CPA and speaking with them so that they can tailor their answers to your situation. 

In the mean time, here is a good place to start researching: http://www.nolo.com/legal-encyclopedia/top-ten-tax-deductions-landlords-29497.html

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196

@Brandon Hall  Thanks so much for the help! Yeah it was a big question,I didn't give the best description. I appreciate the link, I'm gonna check it out. Thanks again for the response! :)

Even though your question is broad, I can give you an overview of some deductions available to rental property investors.  

As a general rule, you can deduct any ordinary and necessary expenses in order to advertise, maintain and administer your rental property activities.  Here is a rundown of some of the basic types of expenses:

  • Advertising expenses. Advertising expenses can include things like paying for newspaper or online for rent ads, paying for signs that say ‘for rent’ and even paying for an advertising company to promote your properties.
  • Cleaning and maintenance costs. These costs could include the supplies you need to maintain or clean the property yourself or if you hire someone else to do the job for you.
  • Commissions paid. If you use a real estate agent to manage your properties, then the commissions you pay to them are tax deductible.
  • Depreciation (a non-cash expense)
  • Insurance costs. Insurance costs can include property insurance or other types of insurance that are required for a rental property.
  • HOA fees.This would include all fees and assessment.
  • Interest.Specifically as it relates to mortgage loans secured by the property.
  • Legal & professional fees. This can include attorney fees as well as court costs and fees related to inspections.
  • Management fees. If you hire someone else to manage your property or rental activities then you can deduct the fees.
  • Taxes. This would include property taxes and local rental taxes and assessments.
  • Utilities.This would include water, sewer, electric and gas.

But there are also some overlooked deductions for rental properties that you may be able to claim. Some examples of these deductions include:

  • Telephone and Internet. These would be services that you pay to either promote, manage or advertise your rental property.You may need to allocate the expenses between business and personal use.
  • Office expenses.These would relate to your home office including stationary, office supplies and postage as long as they relate to your rental property.
  • Local transportation expenses. This would include a mileage deduction that you would take to visit and maintain the property.
  • Travel expenses. These expenses can have anything to do with travel, whether you needed to visit your rental property to check on deferred maintenance or if you just wanted to make sure that the parking lot was free from snow. You may also be able to deduct the travel costs associated with real estate conferences, courses and camps that you attend to further your knowledge.These expenses count as deductions, as long as they are not overly extravagant.
  • Interest on credit card debt. As long as the interest is on balances that were derived from rental property activities it is deductible.
  • Education and books. These are purchased to further your understanding of rental properties and property management.
  • Equipment rentals. Could be for a copy machine or equipment used at a property.
  • Professional dues. These are for investor groups or property associations.
  • Accountant fees. Fees associated with tax advice and completing tax returns.
  • Subscriptions. This includes magazines and newsletters having to do with real estate management or purchasing properties.

Hope this helps!

Medium smallsf1 300x76Paul Sundin, CPA, Sundin & Fish, PLC | [email protected] | 480‑361‑9400 | http://www.sundincpa.com

Wow @Paul Sundin, CPA  thanks for the response! I knew a few of these but most I didn't even take into consideration. I'm gonna write these down in my journal so I won't forget. have a great day!

@Paul Sundin, CPA   Hey Paul sorry to bother you but I'm new and I gotta ask a question. I just want to make sure I'm getting the depreciation tax write off correct. Let me give an example to see if I got this right. If I have a property worth $300,000 and land is worth $50,000 I would then have a taxable property of $250,000 divided by 27.5 which would be around $9,090. Would that be my tax return as far as deprecation is concerned and would that be every year for the 27.5? Thanks again for the help.

Originally posted by @Ross Ellington :

@Paul Sundin, CPA   Hey Paul sorry to bother you but I'm new and I gotta ask a question. I just want to make sure I'm getting the depreciation tax write off correct. Let me give an example to see if I got this right. If I have a property worth $300,000 and land is worth $50,000 I would then have a taxable property of $250,000 divided by 27.5 which would be around $9,090. Would that be my tax return as far as deprecation is concerned and would that be every year for the 27.5? Thanks again for the help.

 One thing about depreciation is that it is tax-deferral, rather than deductible.  This is because in practice buildings don't fully lose their value after 27.5 years - you will have some capitalized expenses - roof/HVAC/carpet etc.  However in a majority of situations your property value will be higher than the depreciated basis.  So you will have a recapture of your depreciation when you sell your property.

The good news is you can defer these gains(and capital gains) via Starker exchanges.

@Paul Sundin, CPA  yea, everything 4 units or below. So, really depreciation tax can offset the property tax and you can make a little extra money come tax season? ( If depreciation is higher than property tax)

@Jesse T.  Thanks for the feedback! The recapture depreciation only applies to when you sale correct?