092: Last Minute Real Estate Investor Tax Checklist

SHOW NOTES FOR EPISODE 092  –  LAST MINUTE REAL ESTATE INVESTOR TAX CHECKLIST

April 18th is quickly approaching!  If you are a real estate investor, this is a good day for you because you can enjoy the many great tax deductions available to you as an investor.  In this episode, Bill goes over a quick checklist of the top real estate investor deductions so you can make sure you included all that apply before you file your returns.

Overview:

• Tax deadline is TUESDAY, APRIL 18
• Remember you can still file for extension if you are not yet ready
• Make sure you hire a tax professional or CPA with real estate investor experience
• There are some great deductions for real estate investors
• If you missed some on this year’s return, it’s worth it to file for an extension

One of the great benefits of being a real estate investor, besides the great cash flow and returns on your investment, are the tax advantages.  The U.S. tax code is very good to investors and, for the ones who understands the tax code, it can greatly benefit your overall profitability.  Today I will show you some of the many tax deductions there are available for rental property and real estate investors.  It would be wise for you to take full advantage of the tax deductions available to you.

Please note I am not a tax professional, attorney or CPA.  I am simply a real estate investor giving you a general overview on the many tax benefits I have learned about from having my own rental properties.  If you wish to seek professional advice, contact a tax professional.

Here are some of the key tax deductions for real estate investors:

1) Depreciation

• This is a beautiful advantage in that the IRS allows you to deduct the actual cost basis of the property (The structure, not the land) spread out into equal portions totaling 27.5 years. If you divide your total structure cost by 27.5, this is the amount you can deduct yearly.  However be aware that recapture of the depreciation will occur in the year you sell the property.  This means you will have to pay back all the taxes that you saved from using the depreciation deduction.  If you are like me, you will hold the property forever and ever and won’t have to worry about it.

2) Loan Interest/Closing Costs/Points

• If you finance your property, the mortgage interest paid to the lender can be deducted. This may very well be the best deduction you have available.  Depending on your loan, you can pay $10,000 or more on interest alone.  That is a big fat deduction!  On top of that, if you purchase buy down points on your new mortgage, you can deduct that as well.

3) Insurance Premiums

• All insurance premiums you pay for your rental property are deductible. T hese can include Fire/theft/Flood insurance, landlord liability insurance, Theft Insurance, Worker’s compensation insurance and a few others.  As long as the insurance is related to your rental business, it can qualify.

4) Property Taxes

• The taxes you pay yearly on your property are also deductible.  If you have a mortgage it can be as simple as looking at your tax statement to see how much real estate taxes you paid.  If you own the property free and clear you will need to maintain receipts and proof of the taxes you paid.

5) Repairs/Improvements

• Any repair or improvement you do on your property is deductible.  Be sure to keep all receipts and maintain proper records.  Also, be sure to keep the repairs separate from your improvements as they differ on the deductions.  Repairs are fully deductible while improvements you will likely have to depreciate.  Be sure to speak to your Tax Professional regarding the differences.

6) Travel

• If your rental property is close by, you can deduct all mileage expenses to and from your rental property. Be sure to keep accurate logs for this.  If your rental property is far away, you can deduct airfare, hotel bills, car rentals and meals.  Again, be sure to log everything, keep receipts and provide some sort of proof you traveled for your rental business.

7) Utilities

• If you are paying for any of the utilities on your rental property, these expenses are deductible.  This can include electric, gas, water and trash.  In most cases, though, your tenant is probably paying these, unless you have a multifamily property, where the landlord can cover water, gas, sewer, trash and common area electricity.  If so, you cannot deduct them.

8) Home Office

• If you conduct rental business in your home, depending on if you meet certain requirements, you can use this as a deduction.  Also, office supplies, computers, etc. used for your rental business can also be deducted.  Just be aware, by utilizing this deduction, it may increase the chances for audit.  Just be sure you actually use it to conduct business and consult with your tax professional first before attempting to deduct this one.

9) Advertising

• If you pay for any advertising for finding tenants or placing ads you may deduct this as well.   Just be aware that if you are paying for advertising, you should consider alternative free methods to advertise your rental.  I have successfully used craigslist, trulia, Zillow , realtor.com, apartments.com and hotpads.com to find tenants and its all FREE.

10) Employees/Independent Contractors/Property Management

• If you hire professional services for conducting repairs, a property manager or anyone else who performs services on your rentals, you can deduct the expenses.  If you want to make your rental property as passive as possible, I highly recommend you find a good property management company.  Make sure your property management team has these qualities to have better results.

11) Legal & Accounting/Bookkeeping Fees

• The time will come when you need hire legal representation whether it be from a lawyer, CPA, accountant, bookkeeper, advisers or any other licensed professional.  These expenses are all tax-deductible.  Hopefully, you won’t ever need a lawyer or have to evict anyone!!

12) Casualty and Theft Losses

• If your rental property is every damaged or destroyed from some sort of natural disaster you can most likely deduct at least part of your losses.  This can be dependent on how much damage has occurred and what your insurance covers.

13) Commissions

• If you ever provide a commission or bonus, for example, offering a cash incentive to your tenants for finding an approved new tenant upon departure, you can deduct these commissions as well.

When starting out with your first rental, you may be tempted to do your own taxes as I did.  I thought it was a great idea and of course I thought I was doing them properly.  As my rental portfolio grew, I decided to hire a tax professional and it was the best decision I ever made.  It was because of my CPA that I learned about most of these deductions not to mention she showed me other areas in my taxes I was doing incorrectly.   So, learn from me folks, its best to hire a professional to deal with taxes.  Just be sure to keep all receipts and log EVERYTHING!!

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