Understanding Tax Deductions for Rental Property Owners

Understanding Tax Deductions for Rental Property Owners rfinley@seodig… Mon, 09/30/2019 - 19:10

When you own investment real estate, tax deduction management is a big part of your profit-generating strategy. However, not all landlords understand the full extent of their tax deduction opportunities even when they are fully and aptly managing a portfolio of rental properties. So whether you're just getting into the game or are looking to hone your tax deduction strategy, we've put together a comprehensive non-state-specific list of all the different ways you can legally and rightfully deduct taxes related to your rental property management and maintenance.*

Landlording is a Business; Business Expenses are Tax-Deductible

The most important thing to remember about how your tax deduction strategy is that being a landlord is considered running a business, whether you have one house or hundreds. Investment real estate is a personal business plan. And business expenses are by definition tax-deductible. This means that almost all spending you do related to your investment properties can be seen as tax-deductible as long as you follow a few basic guidelines.

Interest Accrued on Properties or Management Expenses

Interest accrued in the act of managing your rental properties is tax-deductible each year. But this goes above and beyond your basic mortgage interest. In fact, any interest accrued relating to your rental properties can be deducted. Including interest on home improvement loans, storage rental for abandoned or staging furniture, and even your credit card interest if you buy things for the tenants or properties.

• Mortgage Interest
• Improvement Loan Interest
• Business Credit Card Interest

Employee Wages and Service Fees

If you hire someone to do work for your property, that is a tax-deductible expense. When you hire plumbers and roofers to take care of your rental homes, what you pay them is a deductible business expense. If you hire property managers to see to the properties, that too is deductible. In fact, even the neighborhood kid who rakes the leaves and shovels the snow is tax-deductible. As long as you give them a receipt.

• Maintenance Services
• Property Managers
• Anyone Who Services the Property

 Depreciation of Assets

Did you know that a rental home is considered a depreciating asset? While it's true that property values, as a whole, continue to rise, the government also acknowledges that homes and their contents wear out over time. The lifespan of a rental home is measured at 27.5 years, so you can deduct 1/27th of the home's cost each year. But you cannot deduct the cost of the land, so you'll need an appraisal report to separate out those numbers. You can also get a Cost Segregation Study to analyze the cost and lifespan of each aspect of your home like the carpet, roof, driveway, and so on and separate those out to individual deductions as well.

• The House Depreciates at 1/27th Per Year (But Not the Land)
• Individual Feature Depreciation

Legal and Financial Support Services

If you hire business support services to help you make smart decisions and properly manage your rental properties, the fees for these services are deductible as well. Your lawyer, accountant, and investment advisors are all part of your business expenses.

• Lawyers
• Accountants
• Investment Advisors

Travel for Investment Business Purposes

If you travel for your investment real estate business, these expenses can also be deducted, but within reason. To deduct travel expenses, you must keep records and receipts and spend at least half of your trip time seeing to investment matters. This, however, can include everything from flying out to scout or maintain properties to the gas for driving to the nearest home improvement store for supplies to DIY some maintenance.

• Scout New Properties
• Visit and Maintain Properties
• Long Drives for Maintenance Supplies

Marketing Your Properties

Last but certainly not least, you can deduct anything you spend marketing your rental properties. If you pay for tenant-sourcing platforms to promote your properties, those fees are deductible. Likewise for your own private website design and maintenance costs. And if you conduct non-digital marketing like hosting open houses and posting signs, these, too, are deductible business expenses.

• Websites
• Property Promotion Platforms
• Signs and Open Houses

Because investment property ownership is considered a personal business, any costs you incur while managing your real estate business are deductible as business expenses. Just be sure to take meticulous notes, always get a receipt (or write one) and stay within the letter of the law on each deduction. If you're ready to make an investment, contact Reedy & Company today!

*Check with your tax advisor before to see if investing in a property is right for you. 

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What to Do When a Tenant Leaves Their Stuff Behind

What to Do When a Tenant Leaves Their Stuff Behind rfinley@seodig… Mon, 09/16/2019 - 13:48

Tenants leave things behind all the time, and dealing with those left-behind possessions is not always easy. Landlords are bound by law to handle abandoned possessions in a specific way based on the laws of the state. If your tenant has recently left a bunch of stuff behind or even just a few specific items, you'll need to follow your state's mandated procedure exactly in order to stay within the bounds of the law.

Fortunately, most states vary only in small details like time limits and very specific limitations. We can give you the gist of the process that is consistent from state to state so you know what lies ahead when tenants leave possessions behind. 

Know Your State Laws

First, you need to read up on your state's laws for tenant abandoned property. Each state defines the details of this process a little differently, primarily regarding:

• Method of Abandonment
  • Whether the tenant left as-scheduled at the end of their lease, was terminated, was evicted, or disappeared without paying rent.
• Limitations on Possession Handling
  • Some states, for example, would not allow you to store tenant property across state lines.
• Time Limits
  • Many states set minimum time limits you are allowed to wait before sending a notice or for tenants to return for their items before they are disposed of. 

Get a Neutral Witness

In case of liability accusations later, it's always a good idea to have a neutral witness present when handling abandoned tenant possessions. Ask a neighbor or a friend with no financial stake to observe as you pack up tenant items for storage and processing. 

Itemize, Photograph, and Store the Possessions

As you pack up tenant possessions, be sure to make an itemized record of what you've packed, where it was packed, where you're storing it, and the related costs.

• Make a List
  • Create an item-by-item list of everything you pack up
• Photograph Items
  • Snap a photo of each item, or clearly laid-out groups of items, to show the condition and prove their presence at the time of packing.
• Store Safely Nearby
  • Store tenant items safely nearby. This can be in paid storage, the unit's garage or basement, or your own garage or back shed. As long as the items are nearby and secure.
• Keep Records of Related Costs
  • If there are costs for packing or storage, keep records for itemized security deposit charges later.

Written Notice of Abandoned Property

Next, you will need to deliver a Notice of Abandoned Property, a letter you can find boilerplates for online. This letter needs to be hand-delivered or sent in a way that returns a receipt (Certified or First Class mail with receipt). It will also need to contain specific information:

• Hand-Delivered or Certified Mail
• Itemized List and Photographs
• Deadline (Check State Laws)
• Storage Location
• Cost of Storage
• What Will Happen to Unclaimed Property 

Once the notice has been sent and received, you have until the indicated deadline to wait. After that time, you are free to sell, donate, or toss the tenant's possessions as you so choose.

Exceptions

There are a few exceptions in how you must handle tenant possessions. For these three exceptions, you do not have to pack, store, and return items.

• Garbage is Trash
  • Anything that is clearly garbage like packaging, broken furniture, and rotting food can simply be tossed.
• Fixtures are Part of the Unit
  • Anything that was installed into the walls or ceiling like bookshelves, light fixtures, and coat hooks are legally now part of the unit. You can keep them or remove them without returning as you please.
  • If the lease includes the responsibility for tenants to return the unit to its original state, you can add removal costs to the security deposit.
• Vehicles are for Law Enforcement
  • Abandoned vehicles fall under a separate law and should be submitted to law enforcement instead.

Charge the Security Deposit for Costs

Finally, with all costs related to the abandoned property management itemized, you can add them to your deductions of the security deposit. This can include cost to pack and remove items, cost to store, and cost to uninstall any fixtures left that you did not want to keep.

For more insights and tips on landlord laws and how to handle tenant situations, contact us today!

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Ashley Griffin

Ashley Griffin rich@jameswachob.com Tue, 09/10/2019 - 20:33

Client Services

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Zach Baddour

Zach Baddour rich@jameswachob.com Tue, 09/10/2019 - 20:31

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The Top 4 Qualities of an Effective Property Manager

The Top 4 Qualities of an Effective Property Manager rfinley@seodig… Tue, 09/03/2019 - 18:35

There is no substitute for an effective property manager. A highly skilled, resourceful property manager can save owners and investors thousands of dollars and can help establish a good name for your rental complex. But top-tier property managers are not always easy to spot. The key is to know which qualities combine to make a successful property manager. Below are the top four qualities to seek in an effective property manager.

1) An outstanding industry reputation

The path to finding an effective property manager begins with a careful evaluation of area firms. Unfortunately, the property management industry is filled with agencies that are all too eager to take your money, but who seem to disappear when you need their services the most. Fortunately, in today's digital age, you have access to online reviews of property management firms. These reviews can help you separate the best from the rest. Here are three things to look for as you review a property manager's background:

• At least 500 Google reviews to showcase industry expertise. Look for companies that have average rating of 4.5 to 5 stars.
• Excellent reviews from employees that feature positive comments about work practices and company culture.
• Active social media pages that provide updates and helpful information to property owners and tenants.

2) Superb accessibility

Property emergencies are unpredictable, often striking without warning in the middle of the night or on holiday weekends. Seeking a property manager that is easily accessible by phone, email, text, or face to face visit is essential to keeping property well-maintained and boosting tenant satisfaction.

As you evaluate prospective property managers, look for those who return your calls quickly and provide answers to your questions without hesitation. A lack of responsiveness to you is often an indicator that the firm will be equally unresponsive to tenant needs. Likewise, property managers who have information at their fingertips often have an organized approach to the properties they are managing.

3) The ability to prioritize problems and requests

Not all tenant problems or requests are equally urgent. It is the property manager's responsibility to determine which inquiries are the most urgent and tend to those first. This is a skill that usually comes with experience and one that is especially critical when managing a large number of rental properties. An effective way to assess a firm's ability to prioritize is to look for companies with an experienced team of professionals with years of industry experience.

4) An impressive in-house maintenance and support team

As a property owner or investor, you were likely drawn to the prospect of owning rental properties because it is a means of increasing your income. So the last thing you would want is a property manager who is known for outsourcing all of their maintenance tasks to greedy subcontractors who will eat into your bottom line margin. You can avoid this pitfall by asking prospective property managers the questions below:

• "Do you have any full-time in-house maintenance staff?"
• "Do you use subcontractors? If so, in what capacity do you use them?"
• "On average, how quickly do you respond to tenant requests or complaints?"
• "Do you have an in-house collections agent or do you outsource your collections and billing?"
• "Do you have an online owner portal to facilitate requests and communications?"

Your trusted resource for five-star property management

An effective property manager can be the difference between constant headaches and painless property ownership. If you are looking for help overseeing your investment property, we invite you to contact us at Reedy and Company to discover why we are Memphis's most trusted property management firm. With nearly four decades of industry experience, our team of professionals has the resources to help your investment property thrive. We look forward to serving as your trusted resource for all of your property management needs!

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