Making the most of your property investment business requires a commitment to maximizing all the advantages of your business—including tax advantages.
The United States government has structured the tax code so that certain activities—usually those that involve you taking on risk to create economic value—are incentivized, and therefore taxed less heavily. As you start delving into your taxes as a property owner, you may want to turn to property management, Virginia beach investors, to get some advice on some of the most popular investment property tax deductions.
You'll likely be (pleasantly) surprised how much money you can save by carefully documenting your eligible deductions!
Foreword: While we are experts in Virginia Beach property management, this blog is not tax counsel. If you need live support, get in touch with the Rent Estate™ Advisors at Renters Warehouse Hampton Roads!
Property Taxes and Mortgage Interest
While some of the rules changed with significant tax reform in 2017, there are still many ways that you can deduct expenses from your taxable rental income.
- For instance, if you are paying a mortgage on your Virginia Beach rental property, you can deduct the amount of interest you paid on that mortgage during the calendar year for which you are paying taxes.
- You can also deduct the property taxes you paid on that rental property, even if you've entirely paid off the mortgage.
These are some initial expenditures that most property owners will have, so they are some of the easiest to track and deduct accurately.
However, as with any tax circumstance, you should bring these items up with your accountant or Virginia Beach property manager in case a particular exemption disqualifies you from these individual deductions. They may also be able to point out more significant deductions that you qualify for.
Maintenance and Operations Expenses
Running your business requires some expenses: from advertising your Virginia Beach property to paying utilities if you have a business office, you'll want to track what you spend to keep your business running.
These items should be well-documented in the case of an audit and should follow all the requirements set out by the IRS for what qualifies as a business expense and what does not. Still, some items are business-related, and deducting their costs from your total taxable income will bring your tax bill down in very clear ways.
If you happen to work with skilled property management Virginia Beach investors, this also qualifies as a business expense deduction! It's just another reason why working with a property manager like Renters Warehouse Hampton Roads pays for itself.
Materials and Repair Costs
A property manager is an expert when it comes to tracking invoices for repairs and maintenance that can be used during tax time.
- The IRS sees essential maintenance and repairs, such as replacing broken elements of a building's infrastructure, as deductible expenses.
- Paying someone to keep the grass mowed and edged or to keep plants looking lively and healthy is also a deductible expense.
- From replacing waterlogged carpet to painting rooms that currently have older paint that has started to chip or crack, many of the repairs that you make to bring your property back to a 'gold standard' are deductible expenses.
If you're not sure what kind of care or updates qualify as a deduction, reach out to your partner in property management Virginia Beach property owners to confirm.
Understanding Depreciation and Improvements: A Deductions Lesson
A key distinction to remember when working on your Virginia Beach rental properties is that, while you may commission both a new back patio and a roof repair on the same day, those items are seen very differently in the eyes of the tax code.
While repairs are deductible for 100% of the cost, 'improvements' to the property are handled differently. For instance, adding a new patio to the back of the building creates value that wasn't there before, as opposed to replacing a few shingles, which restored the amount of value that was already there.
Improvements are treated as capital expenses, meaning that rather than deducting 100% at once, you can deduct the 'depreciation' of such improvements a little bit at a time. Work with your accountant or look up current depreciation percentages online in order to know how you can deduct these projects.
Generally, improvements are meant to be spread out over multiple tax years. The rationale is that, while you get the benefits of repairs immediately and they are small, a big addition or improvement continues to give you benefits for years to come.
The Tax-Time Takeaway
While every single deduction doesn't apply to every Virginia Beach property owner, one way to cope with the many expenses of being an investor is to remember that each one keeps your property in working order while also reducing your tax burden.
An exceptional property manager can help you stay organized and keep your receipts and invoices for when you'll need them. Renters Warehouse Hampton Roads wants to bring you more than just tax day value, though. We work hard to keep property owners and residents happy as the best property management Virginia Beach offers!
How do you know you're working with the best property management provider? We made it easy to tell! Download your free copy of our Guide to Finding the Best Property Management Company in Hampton Roads, Virginia, to get started!