As 2019 draws to a close, many landlords, along with much of the rest of the population, are carefully considering their taxes for the year. As a landlord, you must report all the income you make on rent payments and pay taxes on it accordingly. For some landlords, that amount adds up more than expected--and like most people, you would prefer to maximize the return on your investment and minimize the amount you have to pay in taxes. Do you need to squeeze in a few more tax deductions before the year draws to a close? There are still a few last-minute things that you can take care of that can help decrease your tax burden for 2019.
1. Take care of needed repairs around the property.
In order to claim repairs as an income tax deduction, you must choose ordinary repairs--that is, those that your rental property will naturally need over the course of its lifetime--and choose options that have a reasonable cost--that is, you can't just decide to install marble countertops in an average-price rental and hope it will count as a tax deduction. Consider some of these key repairs that you can make on your rental properties even as the year draws to a close.
Fix leaks around the property. A leaking roof, for example, needs to be fixed sooner rather than later. Do you need to bring in a plumber to address a leaking pipe or toilet? Now is the perfect time to take care of those important repairs, keeping your rental property in tip-top shape (and preventing those leaks from causing potentially larger problems over the winter months).
Fix up the gutters, if needed. Your property's gutters may see a lot of abuse over the years, especially if you don't have gutter guards or live in an area with a lot of trees. Do you need to repair gutters or downspouts on your property? Take care of it before the end of the year to maximize your deductions.
Take care of any needed repairs to the flooring. Upgrading the flooring--going for hardwood instead of carpets, for example--may not count as a tax deductible expense, but repairing the flooring--taking care of any holes, for example--certainly does count as a needed repair. Flooring repairs can get expensive in a hurry, but they can also allow you to maximize those end-of-the-year tax deductions, if needed.
Replace broken windows. No, upgrading your windows because they're ancient and let too much cold air in during the winter doesn't count as a repair (though it does count as an important upgrade to the property, since it can help minimize energy costs for you and your tenants in both summer and winter), but repairing broken windows, including attic or basement windows that you might have boarded up and left alone, does count as a needed repair.
Fix up any porches or decks attached to the house. Not only is this a valuable tax deduction, it can make your rental property safer, which can reduce the risk of legal trouble down the road.
2. Take inventory of assets that have depreciated over the course of the year.
Did you purchase assets for your rental properties this year? Those assets might include appliances (a washer and dryer, stove, or refrigerator, for example), a shed for storage, or a carport, for example. If those assets are expected to last for more than a year and degrade with time, you can claim the depreciation of those assets on your taxes. Take the time to review what you have claimed in previous years as well as any assets you may have added to your rental properties this year. Working with an accountant can help you better identify and claim all the assets related to your business, including those that are likely to depreciate in value with time. You may also want to consider what purchases you want to make now or in the next year to improve your deductions at tax time next year.
3. Add some entertainment deductions.
No, you cannot deduct the cost to entertain yourself from your taxes (though that would be nice). Many landlords, however, face some entertainment expenses as part of business deals. You might, for example, pay for dinner out while you consult with a couple considering renting one of your properties, or you might take a potential property manager out to a basketball game while you get to know him, learn more about him, and consider whether he will be the best choice for your business. Want to maximize your deductions for 2019 and have a little fun while you're doing it? Take potential renters or employees out for some fun. Consult with an accountant to get a better idea of which activities are considered reasonable deductible business expenses and which ones are likely to send up red flags: you don't want to create trouble on your taxes later!
4. Hire someone to take care of a task for you.
When you hire someone to take care of your rental properties, you pay them a wage, which you can then deduct from your real estate income for the year. This wage applies to anyone you employ to take care of tasks for you, whether they are performing a one-time service or offering long-term services for your business. This might include:
Hiring a contractor to take care of maintenance or improvements to the property. While cost of materials for improvements might not be tax deductible, the cost of hiring a contractor can be subtracted.
Hiring a property manager to deal with your rental property for you. A property manager can take care of many of the busiest tasks associated with managing a rental property, including choosing new renters, handling rent, and scheduling maintenance and repairs on the property. Many landlords find that hiring a property manager frees up their time to take care of other important tasks as well as providing them with a vital source of support in their investment property journey.
Hiring someone to take care of yard work. Do you provide lawn care services for your tenants while they live in the property? You might want to avoid fines or just ensure that the property continues looking its best no matter who resides there. If you use a landscaping service or hire someone to do yard work, you can deduct those expenses from your taxes. December is a great time to bring in a professional to spruce up the yard, trim back trees and shrubs that need it, and prepare your property to look its best next year.
5. Give back.
Like other entrepreneurs, business owners, and private investors, you can create an excellent source of tax deductions by choosing to give back to your community. In order to maximize your tax deductions, your donation will need to go to a registered nonprofit organization, religious institution, or charity. You must claim only gifts for which no services were received: for example, if you pay the church daycare for your children to attend, you cannot claim that amount as a tax deduction. Many landlords find that giving back to their communities raises goodwill and helps them raise further funds. You may choose to:
- Donate to a local organization that speaks to you personally
- Donate to a church or religious institution
- Donate to your child's school
In order to claim the deduction on your taxes, especially a high-dollar donation, you may need to have a receipt proving the value of the donation. Consult with an accountant to learn the best way to maximize those donations or how much you need to donate to decrease your tax burden effectively.
6. Market your properties.
As a landlord, you can claim the expense of marketing your properties as a deduction on your taxes at the end of the year. If you have several properties open right now--or even one single-family dwelling that you want to be sure gets just the right tenant--consider the value of marketing. You can:
Take out ads on social media. Facebook Ads, for example, are highly targeted, which means you can get your advertisements in front of exactly the type of person you want to have as a client.
Produce flyers. You can drop your flyers off with a real estate agent or spread them around town to help raise awareness about your open properties.
Consult with a real estate agent. If you hire a real estate agent to rent out your properties, you can deduct the cost of that agent from your taxes.
Tax deductions often become extremely important for landlords, especially as the end of the year approaches. With these methods, you can increase your deductions and decrease your tax burden as a result. Do you need to make more improvements to your property before the end of the year? Do you need more help learning about potential repairs to your property or improvements that could benefit you in the coming years? Contact us today.
About the author
Matt Angerer is the Founder and President of VerticalRent. He enjoys writing on a variety of topics that help Landlords, Property Managers, and Renters across America. He is particularly interested in helping renters understand their local marketplace, pick the best places to live, and find an awesome roommate. Since 2011, VerticalRent has grown to service over 100,000 landlords and renters across America.