Don’t let yourself get swallowed up in the financial details of property management. Follow these guidelines to maximize your income potential and minimize your tax bill.
Embrace Your Inner Geek Landlord
Ther are many effective and inexpensive online bookkeeping applications, such as Quickbooks, Freshbooks, and Xero, as well as specialty apps such as DIY Landlord (available on iTunes). These tools can help you track both income and expenses from your property. They can connect directly to your bank account, and have mobile smartphone applications, which makes it easy for you to update your expenses on the go. They also have auto-payment tools to help you collect rents electronically.
Get Smart About Taxes
If you receive rental income from the rental of a dwelling unit, there are certain rental expenses you may deduct on your tax return, including:
- mortgage interest,
- operating expenses (e.g., advertising, maintenance, insurance),
- rental property repairs (e.g., painting, repairs),
- property tax and depreciation.
You may not deduct the cost of improvements which:
- add to the value of your property,
- prolongs its useful life, or
- adapts your property to new uses (e.g., building expansion).
Instead, the cost of improvements is recovered through depreciation. Use IRS Form 4562 to report depreciation beginning in the year your rental property is first placed in service, as well as beginning in any year you make an improvement or add furnishings. These expenses must be depreciated over the useful life of the property; thus, only a percentage of these expenses are deductible in the year in which they were incurred.
You can deduct travel expenses incurred when visiting your out-of-state property, such as airfare, hotel expenses, meals, and other related expenses. Additional deductions may include advertising costs and expenses paid to make your property accessible to the elderly or individuals with disabilities. For more information, see Tax Deductions for Rental Property Owners at http://www.investopedia.com/articles/pf/06/rentalowner.asp.