Nearing the midway point of 2019 it’s a good idea to explore all the important tax deductions for rental property investors in 2019.
The recent Tax Cuts and Jobs Act significantly reduced the corporate tax to a flat 21% rate.
Take advantage of current tax deductions to keep more of your hard-earned dollars in your pocket. Rental properties offer many tax deductions.
Act now before your tax year ends to enjoy the available tax deductions.
Important Tax Deductions for Rental Property Investors in 2019
The most important tax deductions in 2019 include:
Probably the most important due to the biggest deduction for rental property investors. Reduce your taxable income without affecting your cash flow.
You can’t depreciate land. But, the structures on the land qualify. That’s because over time the IRS expects structures to deteriorate lessening their value.
Therefore, allocate as much of the purchase price to the structures rather than the land.
Repairs and Maintenance
All your rental property renovation expenses qualify as repairs tax deductions. The more you classify as repairs the greater your deduction.
Deduct the maintenance of all included appliances, hot water heater, and furnace, A /C’s, electrical, and plumbing in your rentals.
Deduct repairing the roof, gutters, pool, doors, windows, porch, decks, lighting, flooring, walls, and included furniture in your rentals.
You’ll see these add up to many deductions!
Home Office Tax Deductions for Rental Property Investors 2019
Rental property owners maintaining a room used only as a home office creates more deductions.
Your home office also needs to be your principal place of business. That means most of your business activities occur in your home office.
For instance, all your administrative and management activities occur in your home office. This includes setting up appointments, billing, and bookkeeping, storing files, and records. However, it doesn’t mean the only place where you meet with suppliers, clients, and prospective tenants.
Traveling to and from your home office to conduct your property investment business creates transportation expenses deduction. This includes auto mileage deductions.
The IRS gives you two options for taking the home office deduction:
A simple version where you measure the square footage of your home office relating to your entire home. Then apply a rate of $5 per square foot up to a maximum of 300 square feet of space. So, the largest simple deduction becomes $1,500 for using 300 square feet; and
Actual expense deduction requires keeping records of all related expenses separate from your regular home expenses. This includes the percentage of the mortgage interest related to the home office space, repairs and maintenance, taxes, insurance, and percentage of utility usage, and other expenses.
Use IRS Form 8829 to deduct your actual expenses.
IRS Code 1031 Like-Kind Exchanges allows you to defer your depreciation and capital gains tax when you sell an investment property.
As long as you reinvest the sales proceeds into another investment or business property within 180 days from the closing of your sale.
“Like-Kind” doesn’t mean “exactly alike” like selling land and only able to buy more land. The IRS allows the sale of any type of business or investment real property and the purchase of any other type of business or investment properties.
For example, you sell an apartment building for $2 million and use the sales proceeds to buy a mixture of business and investment properties totaling $2 million or more.
Other rules and requirements exist to qualify for a 1031 Exchange. Read this excellent blog post explaining these in greater detail. Here
Actual expenses include:
- Gasoline costs;
- Car maintenance costs;
- Parking fees;
- Toll fees;
- License fees; and
If you don’t own a vehicle the IRS allows you to deduct public transportation costs, taxis, and Ubers. You must keep excellent records of all expenses.
Understand the Difference between Current and Capital Expenses
The IRS rules cover what types of expenses to deduct and when you deduct them.
Current expenses include normal costs of doing business every day. Like insurance, maintenance, utilities, and advertising. Current expenses get deducted for the tax year they occur.
Capital expenses deal with long-term improvements or extensions of the life of a structure like a business property or a home. For example, a $15,000 kitchen remodel becomes a capital expense. Like depreciation, capital expenses get deducted gradually over many years.
The new tax law also created “Qualified Opportunity Funds” for investors to get several tax benefits. This new fund encourages investments in low-income communities.
Like a 1031 Exchange, real property investors can choose to invest the sales proceeds into a “Qualified Opportunity Fund”. This defers the capital gain tax.
By holding onto the investment for several years leads to a reduction in capital gains taxes or completely eliminate it. For example, holding onto the investment for at least 10 years results in the complete elimination of the capital gains tax. Learn more about this opportunity. Here
As you just read important tax deductions for rental property investors in 2019 provide great opportunities to save money.
Since this blog post only provides a summary of the recent tax law changes read a full explanation. Here
To learn about other tax deductions for real estate investors in 2019. Click Here
Get Another Tax Deduction
Property Management services qualify for full tax deductions
Hire Us and you will find We Lease in San Diego provides a full property management service for all your rentals. Whether single condominium units, single-family homes, duplexes, multiplexes, and apartment buildings we handle all types of rentals.
Steven Rich, MBA – Guest Blogger
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[Disclaimer: These tax savings tips for real estate investors 2019 blog post based on articles written by CPA’s provides general tips made by these CPA’s. You should not interpret these tips as complete tax, legal, or accounting advice. Consult with your accountant, tax lawyer, or another tax expert about these tips and if they pertain to your specific situations.]