One of the benefits of owning and managing properties is the ability to leverage your taxes as a property owner. If you’re not an accountant, however, it can be more daunting than exciting—especially if you don’t know what you can deduct, or how to best position yourself and your income.
We’ve talked with a variety of professionals in the fields of property management, tax laws, and accounting to bring you their best tips for getting the most from your taxes.
1. Don’t forget to deduct repair costs
“If you pay a repairman or other person $600 or more during the year to perform services for a client’s property, you must separately report those payments to the IRS.”
—Stephen Fishman, Tax expert, attorney, and author
2. Claim your home office
“You may not consider your rental income to be a business with a regular office, but it is. You have to record your income and expenses somewhere and that is likely to be your desk or a room in your home. If you use a room or other dedicated space in your home exclusively for your rental activities you can claim a portion of your house expenses as a deduction against your rental revenues.”
3. Add additional revenue streams where possible
“In multi-family properties, look for the opportunity to add services like coin-operated laundry and vending machines, which will not only provide revenue but will add resale value by raising the property’s return on asset value, or capitalization rate.
In single-family homes, offer extra house cleaning and landscaping services to tenants when they sign the lease. They may be happy to pay extra to avoid responsibilities they’d otherwise take on. You can negotiate the rates of independent landscaping and cleaning services, contract them out, and collect a fee as the contractor. For instance, if a cleaner agrees on a $75/month fee, you may offer the service to your tenant for $85/month, increasing your annual revenue by $120.”
—Blake Hilgemann, Property Manager and contributor to BiggerPockets.com
4. Use rental losses to your benefit
“If a taxpayer is an ‘active participant’ in a real estate activity, they can normally use up to $25,000 of rental losses to offset other sources of income. Unfortunately, if a taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds $100,000 those losses begin to be reduced and at $150,000 are phased out completely. Essentially, you can use rental losses to reduce your ordinary income unless you start making too much money.
One interesting exception to this is if you are a real estate professional. In those cases, the entirety of rental losses can be used against ordinary income—regardless of income level. There are other considerations, but the two main requirements are that:
- More than one half of your personal services performed across all businesses and activities are performed in real estate trades or businesses
- More than 750 hours of services are performed in real estate property trades or businesses in which the taxpayer materially participates
As with anything tax related, who exactly qualifies would vary on a case-by-case basis, but property management companies would be in a very good position to qualify as real estate professionals for the purpose of this deduction.”
—Micah Fraim, CPA and best-selling Amazon author
5. Minimize tax liability when you file
“Whether you’re running a property management business full-time or are a realtor who’s working as a property manager on the side, you can take steps to minimize your tax liability as a Schedule-C filer. [For example] track your mileage for every site visit and errand that you complete, which includes making bank deposits, buying office supplies, driving to the post office, affixing for rent signs, showing apartments, and attending meetings.”
—Thomas J. Williams, EA, Tax Accountant & Owner of Your Small Biz Accountant, LLC
6. Join the landlords' association in your area
“Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property.”
—Andrew Beattie, Investopedia
Jessica Thiefels has been writing and editing for more than 10 years and is now a professional freelancer and consultant. She's worked with a variety of real estate clients and publishers, and has been featured on Forbes and Market Watch. She’s also an author for Inman, House Hunt Network, Homes.com and more.