Tag Archives: real estate investment secrets

Top 10 Tax Deductions for Landlords

Every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property. Rental real estate provides more tax benefits than almost any other investment.

Often, these benefits make the difference between losing money and earning a profit on a rental property. Here are the top ten tax deductions for owners of small residential rental property.

1. Interest

Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.

2. Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses. You can:

  • deduct your actual expenses (gasoline, upkeep, repairs), or
  • use the standard mileage rate (55 cents per mile for 2009; 58.5 cents per mile for July 1, 2008 through December 31, 2008 and 50.5 cents per mile from January 1, 2008 through June 30, 2008). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

5. Long Distance Travel

If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction.

However, IRS auditors closely scrutinize deductions for overnight travel — and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter.

For the ins and outs on taking the home office deduction, see Home Business Tax Deductions: Keep What You Earnor Every Landlord’s Tax Deduction Guide, both by Stephen Fishman (Nolo).

7. Employees and Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty and Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.

10. Legal and Professional Services

Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

Did You Know?

Did you know that:

  • Landlords can greatly increase the depreciation deductions they receive the first few years they own rental property by using segmented depreciation.
  • Careful planning can permit you to deduct, in a single year, the cost of improvements to rental property that you would otherwise have to deduct over 27.5 years.
  • You can rent out a vacation home tax-free, in some cases.
  • Most small landlords can deduct up to $25,000 in rental property losses each year.
  • A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
  • People who rent property to their family or friends can lose virtually all of their tax deductions.

If you didn’t know one or more of these facts, you could be paying far more tax than you need to.

by: Stephen Fishman , J.D.

Real Estate Markets in Florida Have Hit Bottom

Things are looking up on the real estate front, the University of Florida says.

“Results of our first quarter survey indicate that the real estate market in Florida has hit bottom and is in the process of stabilizing across most property types,” Timothy Becker, director of UF’s Bergstrom Center for Real Estate Studies, said in a statement.

While unemployment and foreclosures will continue to affect housing, some areas of the state, including South Florida, are rebounding. The report cites Miami-Dade and Broward counties’ diverse economies, steady migration and influx of foreign capital.

“The glut of condos in South Florida is actually starting to change hands — they’re beginning to rent them up — and I think there is more life in downtown Miami than there has been in a long time,” Becker said.

The apartment sector remains the hottest in the state because of demand from residents moving out of foreclosed homes, Becker said. But the retail and office markets will continue to struggle until there is more job growth.

The Bergstrom Center says it conducts quarterly surveys of real estate trends by interviewing leaders and professional advisers in the industry.

From Sun Sentinal | Posted by Paul Owers on April 29, 2010 12:31 PM

Home Prices: 1st Annual Increase in 3 Years

(AP Associated Press via msnbc.com)

MIAMI – Home prices in February posted their first annual increase in more than three years, though it’s too early to say the housing market is recovering.

Despite the 0.6 percent increase on a non-seasonally adjusted basis, 11 of the 20 cities in the Standard & Poor’s/Case-Shiller home price index showed declines.

The last time prices rose on a year-over-year basis was December 2006. But economists polled by Thomson Reuters had predicted prices to rise 1.2 percent in February.

For the rest of this article please visit: http://tinyurl.com/help-for-landlords-6

How to Pick a Real Estate Agent

Just read a great article on Forbes.com called “How to Pick a Real Estate Agent”.  Here’s how it starts:

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by Stephane Fitch, 04.09.10, 06:00 PM EDT

The most knowledgeable agents also know how to broker rentals.

Most advice for picking a real estate agent is pretty standard: Find somebody who’ll listen to you, who’s experienced, sweats the details, works evenings and weekends, blah, blah, blah.

It’s true and sensible, as far as it goes, but also obvious and frustratingly subjective. Here’s a concrete suggestion that’s less well known: Find an agent who also brokers rental properties in your price range

Real estate agents who take the business of brokering rentals are uncommon. In most cities successful Realtors look down on the rental business. Why? The commissions are lame. If you buy a $2 million house in San Francisco, your brokerage and the broker representing the seller get to split a fee of from $80,000 to $120,000. Rent the same house for the going rate in the sourdough capital and the agent will probably make a fee that isn’t much more than the $5,400 monthly rent.

That means agents who handle a lot of rental properties may have to work harder, make less and get less respect than their home-selling peers. For sellers the upside is that they tend to be hungry and more knowledgeable about local housing.

They can tell you how the value of any home stacks up against what it would fetch on the rental market. Say you’re standing in the dining room of a home you’d love to buy. If your agent knows the local rental market, he or she will be comfortable telling you what it would cost to rent equivalent housing nearby. If it’s your own dining room you’re standing in and you wish to sell your property, they can give you an honest assessment of what it would fetch on the rental market if you opt to lease it out instead.

Yes, you’ll still face conflicts of interest. Rental agents are motivated to sell you a house rather than rent you one so as to collect a higher fee. So look for one who’s trustworthy and backs up any claims with solid research.

for the rest of the article, please visit Forbes.com

Pending Home Sales on a Record Roll

Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1.  The index is at the highest level since June 2007 when it was 100.7.

Lawrence Yun, NAR chief economist, said the housing market momentum has clearly turned for the better.  “The recovery is broad-based across many parts of the country.  Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit,” he said.

“Other buyers are taking advantage of low home values before prices turn higher.  Nationally, the typical mortgage payment now takes less than 25 percent of a middle-income family’s monthly income to buy a median priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970.  As long as home buyers stay within their budget, mortgage payments will be very manageable,” Yun said.

NAR estimates that about 1.8 to 2.0 million first-timebuyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.  Buyers have little time to act because they must complete the transaction by November 30 to qualify for the credit.  Unless extended, contracts signed but not completed by that date will not be eligible – it is taking approximately two months to complete home sales in the current market.

The Pending Home Sales Index in the Northeast declined 3.0 percent to 78.8 in July but is 4.7 percent higher than July 2008.  In the Midwest the index slipped 2.0 percent to 88.1 but is 8.1 percent above a year ago.  In the South, pending home sales activity rose 3.1 percent to an index of 103.8 in July and is 12.0 percent above July 2008.  In the West the index jumped 12.1 percent to 112.5 and is 20.0 percent above a year ago.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said Congress needs to keep the momentum going.  “Even with a good recovery taking place, the market is not yet back to normal.  With a gradual absorption of inventory, we are on the cusp of a general stabilization in home prices,” he said.

“To ensure that housing has a broad stimulus to the overall economy and stays on sound footing, we’re encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences.  The faster we stabilize home prices, the fewer families will face foreclosure and the quicker credit can be extended to other sectors of the economy,” McMillan said.

NAR’s Housing Affordability Index stood at 158.5 in July, below the peak set in April but is still 36.0 percentage points higher than a year ago.  The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

Yun expects existing-home sales to rise through the fourth quarter.  “Unless the Pending Home sales on a record roll ……continued from front covertax credit is extended, no one should be surprised to see home sales drop in the firstquarter of next year,” he said.  “However, the fundamentals of the housing market and the economy are trending up, and we expect home sales to generally pick up in the second quarter of 2010.  The buyer psychology may be shifting from, ‘Why buy now when I can purchase later,’ to ‘I don’t want to miss out on a recovery’.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalizedwithin one or two months of signing.

Article courtesy of Professional Edge.  The Bronx-Manhattan North Association of Realtors.  September 2009.  www.BMAR.org