Real estate investing allows you to leverage your cash and build equity in a cash flow positive investment. This though isn’t the only benefit of real estate investing. One of the additional benefits, if managed properly, is the potential for deducting real estate expenses which can minimize your outgoings dramatically.
There are several regular expense deductions that you need to track, such as depreciation, mortgage interest, and pass-through taxation. These expenses can be set up as recurring expenses in a landlord app such as Landlord Studio so that you don’t need to worry about tracking them manually.
However, not every expense is routine. Many will be one-off or otherwise irregular expenses. For example, maintenance or management costs. These expenses can build up over the course of the year to make up a sizeable chunk of your deductible expenses and they must be properly recorded with associated receipts as proof to claim these expenses back at the end of the year.
Using a system like Landlord Studio you can stay organized throughout the entirety of the tax year which will inevitably save you time, sanity, and money.
We go into more detail on these here: Tax Deductible Expenses Landlords and Rental Income
Landlord Studio is available on all devices meaning you can easily update your income and expenses wherever you are whenever you need to. This effectively means you no longer have to sit down at your computer at the end of the day or week and spend hours entering expenses. Instead, enter them as you go.
The IRS requires you to keep all your receipts as proof of your expenses. In the past, this has resulted in shoeboxes and filing cabinets bursting with old receipts. This is at best unwieldy, at worst sorting these could take you hours or even days.
Thankfully there is a better way. A Landlord App like Landlord Studio means you can track income and expenses from anywhere, anytime.
Use your phone camera to digitize your receipts as you get them and attach them to the relevant expense.
Our smart scan feature makes this even easier. The software will automatically read the details in the receipt image and input them into the expense fields for you. All you have to do is hit save.
By doing this you can avoid the build-up of large admin tasks at the end of the month or year and you won’t miss a single expense which could save you thousands of dollars over the course of the year.
1. Personal Property: Personal property that is used in or for the property can be deducted as a property expense. For example whiteware in the property. Or tools that you buy for maintenance purposes. Or stationary etc.
2. Repairs vs. Improvements: It is important to differentiate between work carried out on the property. Work was done that is classified as improvements that are not deductible. However, work carried out which is deemed as maintenance or repairs is.
3. Mileage: Mileage can be a large deductible expense. However, you need to carefully record the distance, date, and reason for travel if you want to deduct your mileage.
We have a built-in mileage tracker to make this as easy as possible for you.
For more information on how to record mileage with Landlord Studio read our article here: Landlord Studio Mileage Tracker
Connect your property related bank accounts to view income and expense feeds from the app and quickly reconcile income and expenses against relevant properties.
You can run instant customizable reports through our software to gain clear financial oversight. We even have an IRS form 1040 Schedule E form 1040 report designed to make filing your end of year taxes as easy as possible.
According to the IRS, if you actively participated in the management of your rental property, you may be able to deduct up to $25,000 against your income each year.
However, let’s say your property brings in $20,000 but you spend $50,000 on it that year. You’d record a loss of $30,000 which is more than the allowed limit of $25,000.
In this scenario, you deduct the $25,000 from your current tax year and then carry over and “recapture” the remaining $5,000 in the following year. If you continue to have losses of more than $25,000 then you can continue to carry over the losses beyond that amount year after year.
For more detailed information read the IRS Publication 925: Passive Activity and At-Risk Rules
Related: How to Transition from Spreadsheets and Paper to a Modern Rental Property Accounting Software
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Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks.
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