When you rent out your property you will be getting money in the form of rent, which is an income source and just like getting profits from a business, rental income is subject to taxation. However, there are many ways through which you can reduce the amount of tax that you have to pay on such property. Here is a look at what these are so that you save money on tax expenses.
Expenses Incurred in seeking Tenants
When you decide to give your property on rent, you need to give adequate advertisements regarding the same. You may have to travel from one place to another for this purpose. Sometimes people fix an agent to get the job done. All such expenses incurred enjoy tax benefits.
Expenses incurred in travelling for Rental Property Requirements
When you rent out property you might have to undertake activities wherein you have to travel to places. For example, you might have to travel from one city to another for finding the right tenants or for speaking to them on any matter related to the house, repair jobs or any thing else. You can total all such travel expenses and use them for tax deductions on rental income.
Loan Payments
Loan taken on property that has been rented can be used to reduce tax payments. When you take out a loan, you would be paying a considerable amount of money towards loan repayment. This includes money spent on interest payments, mortgage insurance premiums, loan repayment for loan taken for property improvement, and much more. You can include all such amounts in tax deductions.
Maintaining the Rental Property
As a property owner, you would definitely be incurring expenses for activities undertaken to maintain your property. You can use such expenses for tax deductions. Here is a look at what maintenance expenses you can include for deductions.
Repairs
From time to time you would be spending money to repair certain aspects of your home structure as they will get worn out due to weather elements or usage. If your tenant does not pay for such expenses, you can mention them to get tax deduction in the year in which they occurred.
Others
Maintenance activities are not limited to repairs. You may have to spend for activities like cleaning up property, doing the garden and landscape, paying fees for property management, take up services for disposing garbage and much more. All such maintenance expenses can be specified for tax deductions.
Depreciation
With time, as with any property, your rental property will depreciate in value. You can take up deductions on such depreciation based on its extent due to wear and tear. Depreciation is one factor for which you will not be spending any money from your pocket at all, yet you gain the benefit of tax deductions from it. Furthermore, if you have made any improvement on your property structure, these are also subject to depreciation and likewise can be mentioned for tax deductions.
Renting to Businesses
Those who have rented out their property to a business or some commercial interest, that is running a home office from the premises can gain tax deductions on such rental income for expenses such as interest on mortgage, insurance payments and much more.
Gain Tax Deductions on Property Losses
It may sound a bit strange, but the amount of money you pay for insurance on rented property can be used to enjoy tax benefits in the event of loss caused by flood, fire and other natural calamities.
In the event that you have to face tax losses as a result of your property, you can get deductions from such loses by showing your rental income.
Summary
As you can see from the above points, there are many ways to cut taxes on rented property, Make yourself aware of all these tax deduction routes and take advantage of them so that you can bring down tax payments considerably and enjoy more of your rented income every year.
Posts Tagged ‘Property Owner’
Ways to Reduce Tax on Rented Property
Sunday, February 21st, 2010Real Property Tax Reduction
Tuesday, September 15th, 2009Did you know that 60% of all real property owners are over assessed by their city? And more disturbing, less than 2% of all tax payers appeal their property taxes? Of the 2% that do actually appeal 70% of them win some type of real property tax reduction.
If you think you might be over assessed, you probably are and it is well worth your time to continue to research and investigate if you have a case. The potential savings range from $200 – $3,000 per year for home owners and much more for commercial property owners. The savings depend on a number of different factors including the value of your property, the tax rate of your city, the amount your property is over assessed by, etc.
Real Property Tax Reduction
Getting a real property tax reduction is really not complicated, and should only take a home owner an afternoon or two to really get an adequate knowledge of the process and how to present your appeal. Among the various details that owners needs to understand is how to select the right comparable recent sales (Comps), as this is the “meat” of most appeals. In other words, most owners are appealing their property taxes under the assumption that they are over assessed. You need to prove this by showing other similar properties that have sold, for less than what your city claims your property is worth.
As you may suspect this can get complicated as cities get “picky” with what properties they are willing to use. And knowing how to pick the right comps for a relatively inexperienced property owner can be difficult. For example some cities will not allow you to use comps from properties that sold under “distressed” situations.
Real Property Tax Appeal
There are other issues besides just comps that owners can dispute. For example the easiest way to get a real property tax reduction is by showing a mistake made by the assessor. For example, say you discover that your city recorded your house with 20% more living space than is actually has. You could easily dispute this. There are many other mistakes that you should very carefully examine. Keep in mind that assessors are often under qualified for that position as they are commonly elected officials that may not have any back ground in appraising properties. Also they are often over worked being responsible for tens of thousands of properties which is daunting task for anyone, no matter the credentials.
All in all, without sounding overly cynical, owners should be aware that your city does not want to give you a reduction. It’s money out of their pocket. One of the biggest mistakes that owners make is failing to abide by the technicalities of the process. Like having the forms filled out correctly and or being late to the appeal meeting, among many others. Cities are looking for technicalities to either dismiss your appeal or give you less than a reduction than you deserve; so you need to be diligent and detailed oriented.
Real Property Tax Reduction
Saturday, May 2nd, 2009Did you know that 60% of all real property owners are over assessed by their city? And more disturbing, less than 2% of all tax payers appeal their property taxes? Of the 2% that do actually appeal 70% of them win some type of real property tax reduction.
If you think you might be over assessed, you probably are and it is well worth your time to continue to research and investigate if you have a case. The potential savings range from $200 – $3,000 per year for home owners and much more for commercial property owners. The savings depend on a number of different factors including the value of your property, the tax rate of your city, the amount your property is over assessed by, etc.
Real Property Tax Reduction
Getting a real property tax reduction is really not complicated, and should only take a home owner an afternoon or two to really get an adequate knowledge of the process and how to present your appeal. Among the various details that owners needs to understand is how to select the right comparable recent sales (Comps), as this is the “meat” of most appeals. In other words, most owners are appealing their property taxes under the assumption that they are over assessed. You need to prove this by showing other similar properties that have sold, for less than what your city claims your property is worth.
As you may suspect this can get complicated as cities get “picky” with what properties they are willing to use. And knowing how to pick the right comps for a relatively inexperienced property owner can be difficult. For example some cities will not allow you to use comps from properties that sold under “distressed” situations.
Real Property Tax Appeal
There are other issues besides just comps that owners can dispute. For example the easiest way to get a real property tax reduction is by showing a mistake made by the assessor. For example, say you discover that your city recorded your house with 20% more living space than is actually has. You could easily dispute this. There are many other mistakes that you should very carefully examine. Keep in mind that assessors are often under qualified for that position as they are commonly elected officials that may not have any back ground in appraising properties. Also they are often over worked being responsible for tens of thousands of properties which is daunting task for anyone, no matter the credentials.
All in all, without sounding overly cynical, owners should be aware that your city does not want to give you a reduction. It’s money out of their pocket. One of the biggest mistakes that owners make is failing to abide by the technicalities of the process. Like having the forms filled out correctly and or being late to the appeal meeting, among many others. Cities are looking for technicalities to either dismiss your appeal or give you less than a reduction than you deserve; so you need to be diligent and detailed oriented.
Five Considerations of Hiring Property Managers
Sunday, March 22nd, 2009Five Considerations of Hiring Property Managers
1. Management Fee
The property owner needs to understand the purpose of the management fee (typically 10%). The percentage management fee pays for the property manager’s time. The 10% allows someone else to help shoulder the burden of owning the property. The owner is paying for someone else to field 2:00 am calls. It is important to remember that the property manager cannot take all of the responsibility and burden off the owner. In the end, it is the owner’s property and the owner’s responsibility.
2. Interview
When hiring any professional, an interview will be conducted to hire the correct candidate and then the professional is left to alone to do their job. Working with a property manager is no different. During the interview process ask good questions; require forthright answers, hire the right candidate, and then get out of their way. If an owner is a high micromanager then they should hire a certain type property manager (see Property Manager categories below).
3. Personality fit
The owner’s personality has to fit the property manager’s systems and procedures. Sometimes owners will have difficulty with a property managers systems and procedures. If a property management company sets office hours between 9-5 Monday through Friday and owner wants an update on their property @ 6:00pm on a Friday evening they will have to wait until 9:00 am Monday. This may drive some owners crazy who want to be very involved in the day-to-day management. If this is the case they probably should hire a manager who will be more responsive to the owner’s needs.
4. Communication
Communication is a two-way street. It is not only the property manager’s responsibility to communicate effectively. Owners should understand they have to lead the property manager in how they expect the manager to manage the property.
Here’s an example: My wife is a director of marketing for a company. She has to be the leader in guiding and directing the advertising agency as to what she wants for the project. She cannot expect the advertising agency to try to guess what she wants in the project.
If your property manager is slow in returning your phone calls explain to them the level of communication you expect. In return, ask them how much communication they expect from you.
Many property managers would rather only communicate with you on as needed basis. Much more than this level of communication from the owner is overkill.
5. Property Manager Categories
While Property managers fall into three categories, the size of the property management company is neither better nor worse than the others. Choosing the size of property manager has more to do with the level of owner pampering and paperwork provided rather than a property manager being good or bad.
Small 1-50 units
Property managers in the small category are usually unlicensed with no training in property management. These managers will have more time for the property owner. This type of property manager is usually not much more than a handyman who will show and rent apartments. If a property owner wants to be hands on and needs to be updated on every specific action of the property this is the manager they should hire.
Pros:
These property managers have the time to cuddle and coddle the owner. They will provide the owner with receipts for repairs and nothing else in documentation.
Cons:
These managers will have no systems in place to and will not be able to negotiate vendor discounts. No 1099s and no accounting documents prepared for your accountant.
Medium 50-150 units
Pros:
These managers have more of a professional approach with the use of some systems. They have the purchase power to negotiate some vendor discounts.
Cons:
The paperwork may be enough for the owner to understand the numbers, but may not be enough information to submit to an accountant or to the IRS.
Large 150+
Pros:
Large companies have invested a lot of money in their systems procedures. They will have an in-house maintenance staff. Their accounting reports can be submitted to an accountant or the IRS.
Cons:
No time with the owner. Communication is very professional, but impersonal, done mostly through email and voicemail. Large management companies offer very little owner pampering and handholding. The downside: even owners who have been in real estate for many years still need some positive reinforcement once in a while.
Ryan Windley coauthored The Property Management Start-Up Guide – How to Start a Property Management Business and Still Keep Your Life in order to introduce entrepreneurs to property management as a viable business.
If you would like to know more about starting your own property management company you can purchase the book @ http://www.propertyprof.info