Income tax time is often a major hassle that real estate investors and landlords dread. Many prefer to distance themselves from the whole process and let a professional handle all that for them. Still, it will be helpful to know what you’re entitled to write off at tax time, so you can be planning for it throughout the year. That way, when tax time rolls around, you’ll be able to collect your full entitlement and benefit financially for your efforts.
Pass-Through Tax Deduction
This write-off was established in the 2018 Tax Cuts and Jobs Act, and it allows real estate investors and landlords to deduct either of two write-offs. The first one amounts to as much as 20% of total net income. The second constitutes 5% of the initial property cost plus 25% of the amount paid to employees. Choose whichever write-off is more appropriate for your level of income.
When you own several commercial properties, it often requires a good amount of traveling. Most driving and travel expenses that are directly tied to your business can be deducted. Gasoline, vehicle repairs, maintenance, and a standard mileage deduction can all be included in your travel expense deduction.
Any fees paid to accountants or other legal professionals can be written off on your income tax statement. All deducted costs must have a direct relationship to your property rental business. Even property management can be deducted because it is considered a professional service.
This has the potential to be a huge write-off, but there’s a catch. All deducted repairs must be considered necessary, reasonable, and ordinary. Also, any deducted repairs have to be claimed in the specific calendar year where they occurred. Using Sunset’s general construction services can help with all types or repairs and remodels.
Employees or Contractors
Any time an outside contractor is hired to perform maintenance or other work, it can be deducted. As long as it relates directly to the rental business, pretty much everything is fair game. In terms of tax purposes, this is considered a business expense, and that means even employee wages can be deducted at tax time.
Home Office Usage
More and more people are starting to work from home, and all work related to your rental business can be written off as home office usage. All home office space, workshop space, and similar setups can be written off under this tax clause.
One of the biggest tax write-offs for most landlords is the interest deduction. This applies to interest paid on mortgages, as well as interest paid on purchases used for the rental units.
Depreciation write-offs allow property owners to recover a portion of the purchase cost over a period of several years. This is another deduction that has the potential to be quite significant, so make sure to claim your full depreciation entitlement.
All rental insurance is deductible, including that for fires, floods, theft, or liability. You can also deduct the cost of workmen’s compensation insurance if you have a number of employees at your rental business. Ask property management San Diego experts to learn more.
Personal property is sometimes used by landlords on rental units. Some examples might be furniture, maintenance equipment, or appliances. Within a given tax year, if these are used on rental units, they will be deductible. The one catch is that their value cannot exceed $2,000.