Tax Breaks for Property Owners

Keeping your rental buildings turning over a profit is becoming harder as the financial system continues to be unstable. As reported by real estate research firm Gardner and Davis Inc., the vacancy rate for rentals across the U.S. Reached a twenty-two-year high in the interval from May to July because the rising rate of unemployment has cut demand.

So what do you do if you are among those property managers who are finding it hard to fill a vacancy, or who rent, but at a much reduced rate because you have to make your property more attractive with incentives like a complimentary month of rent or a bargain security deposit?

You can increase rents, but in the end that situation may perhaps leave you with further vacancies. There is a plan you can benefit from to raise your bottom line, that will not backfire over the long haul. You mustsure you are making the most out of your tax deductions.

The most significant thing to getting the most return for your dollar from your deductions is keeping comprehensive notes, says real estate and tax attorney Jenna Stone. This is based on experience as a property manager. Accurate notes make it painless to see all the write-offs you are allowed to take, and taking every one you are permitted lets you markedly bring down your taxable returns for the year.

There are a number of itemized deductions that every property manager must be sure they include when they file their federal return: * Interest you pay on your mortgage/building loans * Real estate taxes you pay to the county * Maintenance costs for the upkeep of the property * Utility bills for common areas * Insurance premiums * Maintenance, oil and gas for vehicles used by your maintenance person(s) * Building manager's salary * HOA fees.

There are 2 chief caveats when it comes to write-offs. The first is that you cannot deduct for vacancies, even if they are long term. But, since property managers are obliged to report all income earned from rents every month, having a long term vacancy will reduce the amount of income you will report, which decreases your taxable income.

The second is that you cannot take deductions for work done on your personal residence. Deductions must be associated with the upkeep of the property.

In addition to write-offs, there are depreciable costs you can claim. Almost all capital assets are depreciable. When you buy a building brand new, in 10 years it will not be worth nearly the same. The building loses its value over the years. That is depreciation.

Besides the building, which is undoubtedly the biggest asset a property manager can have, there are other capital assets like laundry facilities that are in common areas, DVDs you buy for loan to tenants, and furniture and equipment in your office on the property. Another crucial caveat to remember is that land, although it is an asset, is never depreciable.

The IRS code is very precise when it comes to taking depreciation. It explains the useful life for all assets. It additionally will require that the depreciation deduction must be evenly allotted over the useful life of the asset, and that a share of that depreciation must be taken each twelve months. If a property manager fails to take a depreciation deduction for an asset in 1 tax year, they cannot double up the following year. That deduction is lost for good. Property managers must also be sure that they have receipts to prove how much they paid for the asset to back up the deduction.

Be sure to deduct expenses that you pay that may not be typically associated with owning a building. For example, if your building has a hot tub for common use, the expenses associated with the upkeep of the hot tub are deductible. Some states require property managers to pay water bills, these are also deductible. And if you live in a region that requires property managers to buy special permits every year, the fees paid for the permits are deductible.

Even though some of these expenditures may be little, when added with all of the other deductions, they go a long way in reducing the amount of taxable income you have to report to the government. And as much as we love this country, nobody wants to pay more taxes to the IRS than they have to.