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Rental Expenses Landlords CAN’T Deduct on Their Taxes

A property manager near me always dwells on taxes. Investors in rental properties have many expenses that can be deducted on their taxes. There are three primary groups expenditures fall into for tax purposes. The first group includes expenses that can be deducted in the year the money was spent. These expenses include routine maintenance and upkeep, management costs and fees, and home or neighborhood association dues.

The second group of expenditures are deductible , but over a period of years, not all in the year the funds were spent. This is called a depreciated expense and generally includes anything that lasts longer than one year. These kinds of expenditures include new appliances, heating, and cooling equipment, and the building itself.

The third group of expenditures cannot be deducted at all.

Some everyday items that generally cannot be deducted from your taxes include the following:

rental taxes

  • The cost of the land the rental property is located on. Land is considered to last forever and never wear out. However, the assessed value of the land changes over time, either increasing, or decreasing in value. In some states, the local taxes paid for the land are deductible. Others do not allow this deduction. However, the value of the land cannot be depreciated. If you own the buildings and do not own the land, the cost to lease the land is potentially deductible as an annual expense.
  • The fees paid to anyone for referring a tenant to you are capped at $25 for deductions.
  • Any amount paid over $25 as a gift for any purpose is not deductible.
  • If you allow family members to use a property without paying rent, you cannot claim the unpaid rent as an expense or a loss.
  • Certain expenses paid at closing will be deductible as business expenses in the year of the closing, but others will need to be included in the value of the property and depreciated over time. Some legal fees cannot be deducted at all.
  • You cannot deduct the difference in prime rent from the reduced rent charged when the condition of the property changes , or , changes in the neighborhood, or the community the property is located in changes and the rents the property commands are reduced by these market conditions. If a military base closes and the inventory of apartments exceeds the number of rental customers , you cannot deduct the difference between the new reduced rent and the original rent.
  • You cannot deduct the lost income from a unit or building that you take off the market. If a multi tenant building needs extensive renovations and you stop renting units , the lost rent is not deductible. This also impacts your depreciation.
  • Membership in a buyers club such as Sams or Costco cannot be deducted as a business expense. This is because it is not a necessary expense. However, goods purchased for the use in the business, like cleaning materials or copier paper used to copy leases can be deducted as business expenses. The same goes for social clubs where business deals might be discussed. Strictly professional trade organizations are generally deductible.
  • Parking tickets, safety citation fines, late fees on taxes are not deductible.
  • Business attire is generally not deductible. Attire that is “ specialized” like a work uniform with the company name is deductible.
  • Meals: if you decide to treat the staff to a “ lunch and learn” event, generally only half of the food cost is deductible. Only half the cost is deductible if the lunch is a reward for achieving a goal or just for recognition.
  • Attorney and legal fees are not deductible. This is why itemized settlement statements when buying or selling real estate are so vital.
  • Federal taxes paid are not deductible as a business expense. Generally, any taxes are not deductible.
  • Bribes, kickbacks, or anything illegal. Materials imported into the US illegally or fraudulently are also not deductible. Be certain that if you buy furnishings for furnished apartments, that the correct import tariffs are paid, and include that in your contract to purchase. Wages paid to workers “ under the table” are not deductible as a business expense.
  • Travel for a travel companion that is not a direct employee or owner of the business. Owner or staff travel for business purposes is deductible, but a non employee travel companion, or a spouse not employed or an owner is not deductible.
  • Late fees or collection fees that are deducted from a tenants deposit are not deductible as business expenses.

    • The Benefits of Using Premier Business Investments

    rental business taxesThe tax laws governing property management benefits are complex and varied. Premier Business Investments always works with our property owners to insure they receive the information they need to address the expenses with a tax professional. Premier Business Investments does not provide legal or tax advice.

    As your property manager, we supply the detailed financial documentation our property owners need to work with tax and legal professionals. Advanced Business Investment strives to maintain close tenant and property owner communication. We employ the latest rapid online application and approval systems to engage prospective tenants early and with the least amount of difficulty for the tenant.

    And lastly, we utilize online, and app based ,and call in systems to report maintenance issues. Our maintenance staff is on 24 hour call in the event of an emergency. Our goal is to manage all of the properties entrusted to us as if they are our own properties and to maximize the return on the properties.

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    Investing in a Single Neighborhood vs Spreading Out Your Investments: Which Option is Right for You?

    As property investment is considered fairly low-risk compared to other types of investments, an increasing number of Americans have begun investing in property. If you’ve already bought an investment property and want to buy more, you’ve probably considered where you should be investing next?

    Here’s something to think about, you should consider investing in multiple properties in the same neighborhood or diversify your portfolio by spreading out your investments to maximize your profits. Please continue reading to discover which option is right for you.

    Benefits of Investing in a Single Neighborhood

    business investments in property

    • Makes a 2nd Purchase Easier: If you have been managing a property in a particular area, you already know the neighborhood; however, you should also be familiar with your local laws, tennent demands, taxes, and insurance fees. This type of knowledge is very beneficial when buying another property in the same neighborhood.
    • Offers Good Returns: Buying another property in a neighborhood that has already been established as having a good ROI and cap rate is always a good idea and offers good returns on your investment. When you own a number of properties in the same market, it also creates positive cash flow. However, equally important, make sure you’re getting a fair market price based on the property’s location.

    Benefits of Investing in Multiple Neighborhoods

    selling and buying property in 2020

    • Lowers Your Investment Risks: There are many reasons why diversifying your portfolio is emphasized in relation to any investment. Whether it’s stocks or property, diversification lowers your investment risk. Although the housing market is not as volatile as the stock market, there is always the very real possibility of negative changes in the market. These can come in the form of natural disasters, such as tornados or earthquakes that can create extensive damage to your home coupled with pricey repair bills. Alternatively, these changes can also come in the general depreciation of the value of a neighborhood. What once was a respectful neighborhood may no longer stay or be that way in the future. Moreover, by spreading your properties out, you are minimizing your potential losses and lowering your investments risks.
    • Future Appreciation: By buying multiple properties in different areas, it is almost guaranteed that the price of at least one of your properties will greatly increase in the future. This is due to new infrastructure and regeneration projects being built in the area, specifically designed to breathe life back into that location. For example, if a new mall is built near your home or if a new canal or garden is created close to your location, the price of your home will go up. To fully capitalize on this aspect, you should be looking into noteworthy future architectural changes and other projects taking place in the areas that you to invest in.

    Why Hire Professional Property Management Services?

    If you’re still unsure about which option would suit you better, you should hire Premium Business Investments to let us help you with your property needs. We will analyze the market and come up with the most suitable plan that meets your requirements. Investing can be tough, so let our experts take care of the nitty-gritty for you by contacting us today and discover a wide range of options that’s right for you.

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    How to Quickly Determine the Value of an Investment Property

    Investing in property can be a tricky business as you need to ensure that the residence you’re buying has a good resale and rent value. This can be determined by location, quality tenants, and a number of other factors. If all of this sounds overly complicated to you, make sure to read through this quick guide that breaks down the value of property management companies and lets you make better financial decisions.

    Here are three pro tips you can use:

    Pro Tip #1: Calculate Rent Based on Comparable Sales in the Area

    estimating investment profitsBefore expecting to make any returns on a property, you need to have the price range validated by the volume and prices of houses that are being sold or rented out nearby. Avoid looking at national prices, just focus on the specific neighborhood where the sale is being made.

    If you’re planning to sell or rent out a house immediately as a secondary property, this step is crucial to learning your margin of profit. However, if you’re a homeowner looking to buy your first residence or flipping it, you need to consider the location of the area as well as the following questions:

    • Are there hypermarkets nearby?
    • Are there schools nearby?
    • Is it conveniently located?
    • Is it in a good neighborhood?

    All of these factors will increase resale and rental value, even if the property might be more expensive for you initially.

    Pro Tip #2: Calculate the Rate of Investment (ROI)

    investment ROIOnce the ideal location has been established, a better way to calculate your profits from rental properties is with an ROI. Below is a simple list that explains the basic concept of the ROI:

    • 1. You buy a house for $400,000.
    • 2. You rent out the property for $3,500/month.
    • 3. The upkeep of the house costs you $400/month.
    • 4. The ROI is the percentage of your profit per year, and it’s essentially a percentage of your earnings. For example, let’s say your annual income is $3,500 x 12 – $400 x 12 = $37,200. Therefore, your ROI per year is 37,200/400,000 = 0.093 or 9.3%.

    It is essential to use the ROI to get an estimate of the number of years it will take to earn back all the money spent on the property and start making a profit. When you have a couple of houses to buy in mind, you should use ROI to compare them against each other to find the best bang for your buck.

    Pro Tip #3 : Compare the Price Against the Quality

    investing in real estate 2020To maximize your profits, you need to be able to know whether a property is a good investment or not. Namely, is the price demanded for the house on par with the quality? Do excessive renovations need to be made to a house?

    If you overpaid for a rental and end up splurging on renovations to make it attractive to prospective clients, the only way to recoup your losses is by charging your potential renters more. This drives away clients and guarantees loss. Always get a second opinion from an unbiased property manager before making a purchase.

    Live a Stress-Free Life by Hiring a Property Management Company

    If you have one or multiple properties that you want to rent out, use Premier Business Investments for a smoother ride. Our company has the marketing experience and resources to handle any matters related to your property from advertising to prospective clients to maintaining a property in a good condition. For more information, simply contact us today and get ready to maximize your property investments.

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