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Property Managers Explain Investor Advantages at Tax Time

Posted by Shun Wakita on Feb 25, 2020 12:00:00 AM

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Real estate investors leverage their rental homes as a simple and easy way to make money. But it’s not that monthly rent check that really matters to the long-term real estate investors with rental properties in San Diego County, California. With homes appreciating rapidly, investors think about how real estate investments affects their financial situation at tax time. Owning a rental property in a hot rental market such as San Diego County gives investors short-term passive income as well as long-term gains when it's time to sell. People who fall within certain income guidelines claim rental losses of up to $25,000 that directly reduce taxable earned income as long as they participate in landlord decisions. To minimize gains from a home tax perspective, it’s prudent to use all the legal deductions and capital cost allowances.

Reducing a big tax bill when you sell

One hidden tax benefit that some landlords don’t know about is the capital cost allowance that reduces your tax liability when you sell. When working with property managers in the San Diego rental market, ask about potential rental properties that will bring in a decent market rent now as well as a home that goes up in value over the long-term. According to an article by Turbo Tax, it’s not always a tax burden when a rental home appreciates in value. Investors amortize the house at 4-percent a year. Keep in mind an investor can’t deduct the cost of a items that get worn out over time such as furniture or equipment to use managing or maintaining the rental home. Instead, an investor claims certain expenses over several years as determined by the IRS guidelines. The deduction is the CCA or capital cost allowance.

Figuring out whether you qualify for deductions

When it comes to deducting mileage to and from your rental properties as well as other expenses, it’s not the same for every tax payer. A piece by USA Today points out that people with an adjusted gross income above $150,000 don’t qualify for some deductions. A special rules lets some taxpayers deduct up to $25,000 in losses from their earned income even though rental activities are typically “passive.” In this case, it’s not about whether you screen the tenants, enforce the lease or maintain your rental property. It’s a matter of qualifying for the special rule phased out when an investor makes between $100,000 and $150,000. When you hire a property manager to oversee your rental property or several properties, you are still an active participant, according to the IRS.

Staying meticulously organized

Once you own a rental property, stay organized by keeping every receipt and logging the miles you drive to get to your rental. Keep receipts for any improvements you make as well as money spent on contractors and technicians. In some cases, your receipts will prove you have deductible expenses for the property's maintenance. In other cases, the receipts prove depreciating assets. A taxpayer deducts some of the assets each year for several years. For example, replacing broken door knobs count as an expense deducted with your home taxes this year. However, upgrading with all new, fancier and more expensive levers is an upgrade viewed as a depreciating improvement. For help figuring out the gray areas, talk to a tax professional. Most tax professionals will fill you in on the secrets for why owning a rental property is a great financial move.

At Home Team Property Management, we help you get all of the tax deductions including the fee for hiring a property management company. Talk to us about how to enjoy the financial benefits of owning rental homes. The financial edge becomes clear at tax time for most real estate investors. For more tips about getting the most out of your real estate investments, please contact us today.

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Topics:
investment property, Real estate investment, tax reductions

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