If you own or manage investment properties in San Antonio, you should talk to your CPA about how to reduce your taxes every April. Why?
Because millions of landlords around the country pay more taxes on their rental income than they have to. Rental real estate offers many tax benefits, but you have to know about all the options to take advantage of them.
Talk to your CPA about the tax deductions listed below to make sure you’re saving every penny you can.
Interest is often your most significant tax-deductible expense. Some of the most popular deductions are mortgage interest and interest on goods or services from credit card purchases.
In 2018, a federal tax law reduced the interest deduction for owners who make more than $25 million from their San Antonio properties. But landlords can skirt this limit if they depreciate their properties over 30 years.
Rental Real Property Depreciation
The cost of the apartment building isn’t fully deductible in the year you buy it. Instead, you may retrieve this cost through depreciation. This means you deduct part of the cost of the building each year.
Repair costs are deductible during the year that you do them. Some of the most common rental repair deductions are fixing floors and gutters, repainting, stopping leaks, plastering, and replacing windows.
The cost of any personal property used in rental real estate can often be tax deductible with the safe-harbor deduction or a bonus depreciation of 100%. Examples of the property to which this applies include furniture and appliances in rental properties.
Pass-Through Tax Deduction
As of 2018, most landlords might qualify for pass-through tax deductions provided under a new tax law. The deduction is for income tax, not rentals.
Depending on your income, you can deduct up to 20% of your investment property revenue, or 2.5% of the cost of the property, plus 25% of however much you compensate your employees.
You can get a tax deduction for a lot of the driving you have to do to take care of your investment properties in San Antonio. For example, if you drive to your apartment building on Alamo Street downtown to handle a tenant complaint, travel can be deducted.
But you cannot deduct what your travel costs to fix and improve the property. You have to add these expenses to your building’s tax basis. It’s depreciated over the years.
If you drive a vehicle to manage your rentals, you can deduct your expenses or use the standard IRS mileage deduction. If you travel and stay overnight for your rental work, you also can take deductions for your hotel bills, airfare, food, and more.
Thus, if you are careful, you can do your business mixed with pleasure and get a deduction out of it.
But don’t forget that the IRS will look closely when you deduct expenses for overnight travel. Many landlords and property managers get audited by the IRS because they lack the records to support the deduction.
You can deduct most home office expenses if your office meets IRS requirements. The deduction is relevant not just for the space you use for your office, but also for any other area in your home that you use for your business. This is the case whether you are a property owner or renter.
Independent Contractors and Employees
When you hire a worker to perform a service for your investment property business, you are allowed to deduct their earnings as an expense. This is the case whether the person is a contractor or an employee.
You are allowed to deduct insurance premiums paid for most insurance on your property. Some of the covered deductions are theft, fire, and flood insurance.
You also can deduct liability insurance. If you have workers, you can deduct costs related to workers’ comp and health insurance.
Professional and Legal Services
You are allowed to deduct fees that you have to pay for lawyers, accountants, property managers, and other professionals related to your company operations. You are entitled to deduct these expenses if they are related to work for your business.
More Ways To Save
Now you know some of the ways to save on taxes when you’re a San Antonio rental property owner. Keep the following tips in mind to lower your electricity and gas bills:
- Clean HVAC filters: When filters on HVAC units get dirty, the unit must work harder, and it loses efficiency. This may make your electricity bills climb. So change the filters in all your buildings and units every month.
- Seal up cracks: Heat goes in and out of your property through crevices and cracks around doors and windows. You can have your team caulk these areas, so you won’t have this problem. When there are no drafts, your tenants won’t turn on the heat as much in the winter, and they won’t crank the AC in the summer.
- Turn down the water heaters: People like hot water, but having your heater set too high can cost money. Think about lowering the temperature by 10 degrees. You can save 10% or 20% a year this way.
- Buy programmable thermostats: You should have this kind of thermostat in the common areas of each rental property. You can set the temperature to vary by day and night so as to save as much money as possible. Also, you can install these thermostats in the individual units, but the tenants need to program them.
- Use LED light fixtures: These new fixtures provide plenty of light but use much less electricity than regular ones. You can lower your electricity bill by 30%. Your lights will last up to 15 years each, so there’s less maintenance.
- Motion lights: You ought to have lights on at all times on certain parts of the building, such as the entryway, common area, stairwells, and hallways. But you don’t always need to have lights on for a rear door, driveway, or side entrance.
Keeping all of these ideas in mind will help you to save on your taxes and improve your bottom line.