Managing a rental property can mean facing daunting challenges around every corner. One aspect of property investment ownership that seems to always come up in conversation is taxes. Is there a more efficient or “best practices” way to handle these in a way that eases the financial and mental burdens? If paying taxes is one of the inevitabilities of life, surely someone’s figured out a way to simplify things. We have. And we’re sharing these simple tax-related tips with you.
1. Managing the Various Deductions
Owning rental properties means also recognizing what expenses are deductible. Mortgage interest, for example, can be the most significant deductible rental expense. It’s essential to understand that only the interest amounts apply, not the amounts applied to the principal. Origination fees for refinancing and any credit card interests for property-related purchases may also apply. Other deductible expenses may include insurance premiums, property depreciation amounts, maintenance, and repair expenses. Property tax deductions are important too. State and local income taxes can be a tricky subject. The IRS limits the amount you’re allowed to deduct from your gross earnings for state and local property tax at $10,000 or 5 thousand if married filing separately.
2. Knowing Precisely What’s Taxable
Many new rental property investors struggle to wrap their heads around all the nuances of knowing what’s taxable and what’s not. There are timing guidelines to know. For example, collecting December’s rent in January is taxable as the previous year’s return. Also, other considerations matter, like knowing a trade for goods and services for rent is taxable. Security deposits, alternatively, are not included in your income totals since you intend to return those. First and last month rent deposits, however, are taxable because they are expressly rental income you intend to keep.
3. Know Your Depreciation Formulas
Having a comfortable understanding of how to calculate your rental property’s depreciation can really help simplify things for you at the tax level. A straight-line depreciation means the cost basis is evenly spread over the tax life of the rental property. A declining balance depreciation is calculated by multiplying 150% or 200% with straight-line depreciation adjusted amounts. And bonus depreciation is about being charged for acquired assets after September 2017. The old 50% depreciation will still apply to those assets acquired prior. Anything else allows for 100% bonus expensing of those new or used assets.
4. Partnering with Professionals
Every rental property is as different as its owner. So, know that there isn’t a one-size-fits-all approach to managing taxes for everyone. To keep the best hold of your finances and always ahead of the curve, consider partnering with the best vendors to help. A reputable CPA or tax professional who has experience with managing rental properties is key. And you can always make everything more efficient with the right rental property management partner, like PMI JCM Realty Group.
Tax season is coming and will be here before you know it. You can explore some of these rental property tax tips to help prepare. And as always, let PMI JCM Realty Group help with your operations, tenant management, marketing, and more.
We aim to stay ahead of the rental investment curve here in the Tampa Metro area rental property market. If this topic about taxes is helpful or has inspired you to learn more, sign up for our free webinar. Discover new strategies in the How to Streamline Your Rental Portfolio for Maximum Growth segment! It’s yet another hot topic for every property investor right now!
You can also find management answers by joining our Facebook group to connect with other rental property owners interested in similar ROI success. Exchange fresh tenant engagement ideas and address typical process challenges with other property professionals. And should you have more specific questions deserving of a more in-depth, customized response, schedule a meeting on my calendar, and let’s connect!