Tax Deductions for Investment Property
As a Landlord, Rental Property Owner or Vacation Home Owner it is important to prioritize end of the year tax planning and tax deduction for your investment property business. You can keep more money in your pocket by taking advantage of available tax benefits and by tapping into new tax saving opportunities. Follow these top year-end tax tips and strategies for rental property owners.
Identify your rental investment property’s short life assets to depreciate them faster. Assets like air conditioners, refrigerator, carpets, clothes dryer, etc can be depreciated over 5-year life while fences, patio, sidewalk, etc can be depreciated over 15 years. By separating assets and depreciating them separately, deductions are taken sooner.
If you rented your vacation home or home for less than 15 days, you can exclude the rental income on your tax return. In order to avail this tax benefit, the vacation rental home has to be considered a residence. In order for the property to be considered a residence, you or your family member have to use the home for 15 days at least. You may not be able to deduct any investment property rental expenses but you can deduct interest, property taxes if you itemize deductions.
Considering you tax bracket it might be a good idea to accelerate income by receiving January income in December. Income timing is not easy, and you should consider its impact on various deductions. There are many different types of expenses that can be accelerated to reduce rental income for the year. You can purchase goods and services needed for the rental property business, and pay the bills early. Qualifying expenses include advertisements for vacancies, printing, association memberships, business
insurance, seminar fees, education courses, cell services, subscriptions, insurance, and utilities. You can also stock up on any office supplies, like printer paper and ink cartridges.
Interest is generally one of the largest deductible expenses – so you can prepay the January mortgage payment to increase your interest expense for the current year. If you have employees that you pay for your rental business, prepay the withheld Social
Security, Medicare, and unemployment taxes.
If you hired a resident property manager, take advantage of tax credits available for hiring new employees after Feb 3, 2010. For every qualified employee, you are exempted from 6.2% Social Security tax, and an additional tax credit of $1000 is available. You can deduct the cost of health insurance for any employees of your rental business. Take advantage of the health insurance credit, which provides a credit worth up to 35% of premium costs in 2010.
Don’t forget these tax deductions for your investment property business
Claiming a home office workshop or garage deduction If requirements are met thid is one of the best deductions as it enables conversion of non-deductible personal expense into a tax-deductible rental business expense. Besides deducting expenses for use of space at home for office work, you can deduct space used as workshop for rental business. If you use your garage to store your tractor to cut grass or to hold furnishings,
Consider hiring your children to work for your real estate investment rental business part-time. Deduct their compensation and it is likely you will be moving the income from high tax bracket to lower tax bracket. In addition, unincorporated businesses do not pay FICA tax on wages paid to children under 18. Put the money earned in IRA account for them. It is a great way to move money into account where it can grow faster through tax deferral.
Losses experienced by rental business due to casualty, disaster or theft may be tax deductible. If your rental business experienced a casualty or disaster loss, use the loss to your benefit. Do not forget to take the casualty and theft losses because of theft, floods or similar casualty or disaster loss.
Automobile expenses paid exclusively for your rental business can be fully deductible. You can select either the actual expenses method instead of standard mileage if the automobile incurred lot of expenses in 2010. Deduct travel and entertainment expenses incurred when travelling for your investment property rental business. If you travel overnight for your rental business, deduct your airfare, hotel bills, meals and other expenses.
Remember that investment property repairs are expensed in the year that they occur while improvements are depreciated. Deduct the full cost of repairs that are necessary to keep your property in good working condition like fixing broken windows, gutters, leaks, locks, painting rooms, plastering, etc.
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