Offline1. Interest
Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.
2. Depreciation
The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.
3. Repairs
The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
4. Local Travel
Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.
If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses.
You can:
deduct your actual expenses (gasoline, upkeep, repairs), or
use the standard mileage rate (58.5 cents per mile effective July 1, 2008; 50.5 cents per mile from January 1, 2008 through June 30, 2008; 48.5 cents per mile for 2007). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.
"If you cannot do great things, do small things in a great way.”
Napoleon Hill quote
Thanks Jason.
Is labor for the repair deductible?
Also this is the first year for me to take my rental on my taxes. Isn't tax preperation cost your CPA,etc deductible?
This is why it is always a good idea to keep all your receipts, and also to find a good CPA. I found that asking people you already have in your "inner circle" - trusted realtors, lawyers - are a good place to start, as they know good people in your local area. This is why owning a business is great (RE investing), as you deduct these expenses before your profits are taxed. Good luck in 2009!!! I think we'll have a lot of deals coming soon.
Yes, keep all your receipts. Interview CPA's and find one that will give you the details.
"If you cannot do great things, do small things in a great way.”
Napoleon Hill quote
Great Post!
Once you become a full time real estate professional there are many more opportunities available.
Jason,
An investor I have worked with and assigned a couple of deals to wants to buy a house in the Kansas City area as a rental. He is a cash buyer from California. Do you you pay a referral fee if I link him up with you and he buys something from you?
Send me a PM if so.
You've got to find your obstacles and call them out! Unsheath the sword, and do battle with whatever it is that holds you back!
Thanks you for the great post!
A couple more deductions:
5. Property taxes
6. Advertising
7. Utilities
One of the things I love about rental income is that it is considered "passive" income, so you don't have to pay any "extras" like you do on wages or self-employment or profits from sales. no Social Security or Medicare, no capital gains. And you get all the tax breaks. (Jason, I would love to hear your input on this)
One question I have is:
At what point are you considered a "Real Estate Professional" and what ramifications does that have on your tax status? (I'll also be asking my CPA and attorney this question)
Thanks again,
Rina
"Obstacles can slow you down, but they can only stop you with your permission." Dean Graziosi (BARM pg 101)
"For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." Jeremiah 29:11
For a little about me, welcome to the site, and a few tips for new DG family members, click on this link: http://www.deangraziosi.com/user/3249
Though I am a new contributor to this blog and web site, I am not too new to real estate investments. Thanks for allowing me to participate.
A few other tax tips:
Make sure that you keep a copy of your closing statement on all your real estate purchases. If and when you sell the property, this information will be important in filing your tax return during the year the property is sold.
The IRS allowed mileage rate for 2009 is 55 cents per mile. Of course, this could change mid year as it did last year.
Regarding your comments about CPA's, as the husband to a person who has been a tax professional for over 25 years and is not a CPA, the fact that a person is not a CPA does not mean that are uninformed on tax matters. I would encourage you to look for a person who is experienced. Tell them about what forms you normally file on your tax return and see what experience they have in completing those returns. Some real estate matters (such as 1031 exchanges and partnerships) can be complicated and you certainly want to make sure you are working with an able, seasoned professional. You also will want to ask about their availability for consultations away from tax season, and what they charge for a telephone or private consultation.
Rina,
I think it's all about the hours you spend in Real estate. Basically, you want to let your CPA know that you are a full time investor. I don't think you would have a problem with proving that you are a full time investor. Actually, you would not even need to prove it to the CPA. You would only need to prove it if you were audited by the IRS, which most likely will not happen.
"If you cannot do great things, do small things in a great way.”
Napoleon Hill quote
I sent you a PM in refernce to the California investors.
Thanks,
Jason
"If you cannot do great things, do small things in a great way.”
Napoleon Hill quote
My CPA stated that my latest property purchased would be considered "held in inventory" until I sell it. . . .bit of a bummer I think, in that it's been my most extensive rehab with the biggest opportunity for profit. .problem is, it borders our property, we love it and have considered moving into it and rent out our large home for a goodly sum . . .because we're doing some serious scale downs to devote more time to RE investing
Where does that leave us in terms of deductions? can someone shed some light on this for me please?
Ambivalence abounds. . .sell it, rent it? help? how can we reclaim our huge mostly 2008 expenditures which has taken away from our working capital??
crosstown looker
Build_Assets, what about a property in which rental is lost. How does that factor into Tax deductions? Thanks
Sandra
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I would put that as a lost. Is your properties in a business name such as an LLC?
"If you cannot do great things, do small things in a great way.”
Napoleon Hill quote
Hi all
I know this is an old post and unlikely to garner much attention but I thought I would add to it something that might help someone.
I remember from my first home I bought that because I collected rent from family living with me even though I lived there it was a half rental and I got half the deduction of my repairs and such. Now what I wanted to explain is the difference between repairs and improvements as far as how they are treated on your tax return. Repairs are a direct, simple deduction. Improvements, on the other hand, are added to the cost basis of the property when you calculate your depreciation. The higher the cost basis the higher the depreciation amount you can then deduct.
Just something for the newer investors that may not be using an accountant, or even if you do have an accountant you will want to keep track of those receipts so he/she can treat them accordingly.
Steve
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"Nothing can ever stop you without your permission."
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