Own residential rental properties?
This article discusses how income from those properties impacts your taxes.
What Constitutes Revenue?
Generally, rental income is defined as any revenue you receive from the occupancy or use of a residential property. Rent, obviously, is included in that revenue. Many owners are surprised to learn revenue also includes rent advancements, expenses paid by a tenant, and any security deposits not returned to the tenant. In fact, revenue can also include amounts paid to cancel a lease, even if you had to sue the defendant to get it.Yeah, Yeah, But What Can I Deduct?
Tax deductions associated with rental properties are strikingly similar to those found in any business. Technically, you can deduct any expense reasonably necessary to manage, conserve or maintain the property. Obvious deductions include mortgage payments, cleaning expenses, insurance premiums, service payments such as landscape maintenance, repairs, maintenance, etc.
Overlooked rental property deductions include:
1. Expenses incurred in finding tenants,
2. Commissions paid to third parties that arrange for tenants,
3. Paying your accountant and/or lawyer,
4. Mileage for driving to and from the property [I said, No more parties!] 5. Depreciation of the property,
6. Depreciation of items in the property such as washing machines, furniture, etc.
Imaginary Rent Deduction (Don’t do this)
A few creative property owners have suggested that they should be able to deduct their customary and standard monthly rent if the property is empty. The argument goes, If the property is empty, I am not making revenue and should be able to deduct the $1,500 that I am missing out on. At first glance, this almost makes sense. Sadly, it doesn’t fly from the perspective of the IRS. Since you are not receiving revenues, your total revenues for the year will be reduced by the loss of rent. You can’t double-dip by deducting the $1,500 from the already reduced yearly revenues. The only things you can deduct are the expenses you incur during this period, and only for so long as you are actively trying to rent the place.
Rental properties are a great investment. Even more so if you stay on top of your taxes. Always talk to your accountant or CPA and get the scoop for your situation. This is not advice, but information to talk to your CPA or accountant about in our area.
If you want to find out more, reach out to us at https://www.LesliePurdy.com or text/call (321) 209-INFO(4636).
About Leslie Purdy, Real Estate ProfitabilityTM Author, Mentor and International Speaker
Leslie Purdy is a third-generation real estate investor with a lifetime of experience. She and her husband have actively been repairing, rehabbing, and working in real estate for more than 40 years. They are seasoned investors who have made it through all the ups and downs of the real estate market and grown their net worth exponentially.
If you want to find out more, reach out to us at http://www.LesliePurdy.com or call (321) 209-INFO (4636.