We are now in quarter four of the year. Beyond rushing to meet professional goals, helping your company break their year-to-date income record, and, of course, preparing for the holidays, there is also the question of what else can you do to help offset your 2019 tax burden. If you are a buy-and-hold real estate investor, there’s good news: There is something you can do.
Seasoned real estate investors and tax professionals are well aware of the many benefits of investing in real estate — more specifically, investing in rentals. The benefits are numerous and plentiful. However, to take advantage of them all, you must be strategic. Here are some tips to make the most of 2019 when it comes to your tax benefits.
Track And Record
It may be a little late in the year, but it’s not too late. Be sure you track all expenses for your investment property. This includes maintenance repairs, capital improvements, management or professional fees (including attorney fees for evictions), any mileage spent on visiting the property in addition to other travel expenses, any software you use to manage your property or expenses, taxes, insurance and more. There are many more expenses that can be deducted.
However, to avoid a costly audit if it ever happens, be sure you are tracking all expenses appropriately, including keeping track of receipts. QuickBooks users: the QuickBooks mobile app now has a feature that can take a picture of a receipt and log it in your system. Another helpful app that captures expenses, receipts and mileage is Expensify. If you’re only doing light amounts of tracking, Expensify has a free version that may work for you. If you are capturing over five receipts per month, you might want to consider upgrading to the paid version. Either way, when it comes tax time, you will be happy to have all your information easily accessible in one place.
Make Your Property Upgrades Now
If you have been considering renovating the bathroom in your property, do it now. If you have been considering replacing carpet, flooring, garage doors — any capital expense, really — do it now. You can still take advantage of these tax deductions if they are done within the fiscal year. This is a strategic expense. If you have a lot of positive income received from your property, it may make sense to do a capital expenditure to upgrade the property and add another expense to your records. If you are at a loss on your income for the property, possibly push the capital expense back until 2020 or the next year to maximize your tax savings.
It’s important to note here that if you make over $150,000 per year, your tax savings are going to be limited. Let’s say your property made you $10,000 in a year. If you were able rack up $5,000 in expenses and deductions, you still have $5,000 in income. This would be a great time to make property improvements, so you can add an additional tax deduction to your books.
Now, if you make over $150,000, you can only go up to zero — no losses can be written off, even if you had them. If you make under $100,000 per year, you can actually write off losses. In this case, if you use the same scenario above and did $7,000 in capital expenditures, you would have a $2,000 loss to write off.
Make over $100,000? There is going to be a limit on how much you can write off. It is on a grading scale up to $150,000 in which you cannot write off any losses on your real estate investment property.
Sound confusing? That leads me to my next point.
Partner With A CPA Or Accountant Well-Versed In Real Estate Investments
Not all accountants, tax professionals and CPAs are alike. Yes, they should all have the same basic knowledge and education (CPAs being more highly educated and actually certified). However, not all of them know the ins and outs of real estate deductions and how best to advise you on using them. No, your accountant should never steer you in a shady direction that could get you in hot water later with the IRS. But they should be able to guide you on what deductions you are eligible for and how to strategically make the most of those in the upcoming year.
Hiring fantastic professionals is likely going to cost you a bit more. In the end, though, they can save you a lot of money and headaches. And don’t forget — they are a tax-deductible expense!
Tax benefits for real estate investors are abundant and, with proper tracking and recording throughout the year, they can really make an impact on either the return you receive or the payment you make. Be sure to track throughout the year, do upgrades strategically based on your income for that property and partner up with a tax professional well-versed in real estate. Quarter four is here, but it’s not too late to make the most of 2019 and prepare your best for the looming tax season.