- Investors' chances of being audited decreases if they are extremely organized and detailed.
- Think outside the standard deduction box.
Tax deductions always make for a happy homeowner, and the same applies to owners who rent out their properties. Your real estate investor clients will only be taxed 15 percent of the income they receive from their properties as it is considered passive income.
Here are a few uncommon tax deductions that can decrease the amount that real estate agents (who are also investors) or investor clients will be taxed on their investment properties.
1. Travel expenses
Your clients may not live very far from their rental properties, but you can still help them deduct a certain level of travel expenses.
Advise your clients to keep a log of travel mileage so they can accurately report how much their deductible should be.
Whether or not they can consider other expenses — like eating out after inspecting properties — will be something your clients will need to discuss with their accountant.
2. HOA fees
As long as the properties are true rentals, meaning your clients are not living there, HOA fees or other condominium fees can be written off as a deduction.
These maintenance fees are considered outside the purview of the standard homeowner.
Depending on the cost, the write-off may not be that large, but every bit counts.
Those who get paid by investors to take care of the investment properties, from listing agents to contractors, should be accounted for to maximize the deductible.
Regular salaries and wages, like those paid to the landscaping team and the rental manager, are eligible for a tax deduction as well.
Be sure your clients always declare which contractors were paid, and advise them to keep accurate records of all employees, temporary or otherwise.
Let your clients know that being organized and detailed will lower their chances of being audited.
4. Property taxes
Investor clients can use the amount they paid in property taxes to bring down their taxable income on their rental property.
It may seem convoluted, but the basic idea is that the property taxes fall under maintenance the way HOA fees do.
5. Appliances and fixtures
Upgrading appliances will earn tax break benefits and energy saving benefits for your clients, and it will boost your investors’ ability to rent their properties at a higher price.
Investors should think about the following upgrades:
- Window updating (there’s a tax credit for eligible windows)
- Security system installation (makes renters more comfortable and protects the investment)
- Smart technology (installing smart thermostats, lights and more)
- Utility payments (these payments will decrease after all the upgrades, and they are tax deductible)