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Tax Deductions for Landlords to Keep in Mind, Part Two

February 25, 2019

Knowing which deductions apply to you as a landlord will help you take full advantage of available tax benefits during filing season - allowing you to keep more cash in the bank. Below are several equipment and supply deduction categories to keep in mind as you gear up for the big day. Use them as a guide to track your own list of deductibles. By learning your deduction landscape now and by tracking potential deductible purchases, your life will be much easier on tax day.

Take full advantage of tax benefits by keeping in mind equipment and supply deduction categories

Equipment and Supplies

With the recent tax changes, things just got easier for your wallet. These changes give you added flexibility with certain deductions, like purchasing, leasing, or renting equipment. While in years past you could write off supplies in full within the year of purchase, you couldn't do the same with equipment (supplies being short-term assets you generally use within a year and pieces of equipment being longer-term assets you use over several years). To deduct longer-term assets in previous years, you would have had to take incremental deductions on your taxes over several years under a depreciation schedule. This is generally no longer the case. Now you can deduct a large chunk, if not all, of the business equipment costs in the year you place the business equipment in service.
What equipment qualifies for a complete write off in the year it was purchased, according to the new tax laws? Equipment you use 100% of the time solely for your business. However, if you use the purchased, leased, or rented equipment less than 100% of the time but more than 50% of the time for your business, you can write off the business-use portion of the equipment in the year you purchase it. This may seem tricky, but calculate this by taking the total equipment cost and multiplying it by the percentage of business use. For example, if you buy some business equipment for $1,000, but you use it personally 10% of the time, you can write off $900 for business use ($1,000 * 0.90 = $900).
There are three other things to quickly keep in mind before we move into specific deduction lists: (1) if you use the equipment for your business 50% of the time or less, you can still take a deduction on the business-use portion of the equipment, but you'll need to deduct it under a depreciation schedule; (2) there is a $1,000,000 deduction limit for 2018; and (3) if your properties don't turn a profit in the year you purchase equipment, you'll need to speak with a tax professional to determine how you can offset your business losses.

So what are some equipment and supplies that landlords can generally deduct? Let's get into the details.

 

Indoor Maintenance

If you turn over units yourself, you probably have a pile of reusable supplies. You can deduct most, if not all, of the associated maintenance supplies and equipment. Here's an example list of deductible items to help you create your own:

  • Paint

  • Primer

  • Paint buckets/trays

  • Paint brushes/rollers

  • Spackle

  • Putty knives

  • Drop cloths

  • Face masks

  • Locks and keys

In addition to these items, you may also be able to write off the following - depending on if you use them for maintenance or improvements. You can write off maintenance items in the year of purchase, but you'll need to use a depreciation schedule for improvements. So what's the difference between maintenance and improvements? This can be tricky, but the difference is in the answer to this question: does the project improve the value of your property and extend its "useful life" or simply maintain it?
Let's consider an example. If a tenant leaves a hole in your wall, the supplies you use to fix it would be for maintenance and would count as fully deductible items. If, however, you purchase and use the supplies to add a new room to your property, it would be considered a property improvement, and you would only be able to deduct the supplies through a depreciated schedule over the useful life of the property. If you have more detailed questions about what counts as maintenance versus improvement and how to determine "useful life," be sure to consult a tax expert.

  • Plywood

  • Sheetrock

  • Nails

  • Nuts and bolts

  • Ladder

  • Toolbox

Outdoor Maintenance

Maintaining the grounds of your rental unit will incur deductible expenses, especially if you live in a part of the country that has varied seasons. Here's an example list of some of the many deductible items you might use to keep your property looking pristine:

  • Lawnmower

  • Lawn edger

  • Lawn rake

  • Leaf blower

  • Bush trimmer

  • Vegetation clippers

  • Driveway sealant

  • Patchwork concrete

  • Walkway ice melt

  • Snow shovels

  • Snow blower

Cleaning

Like maintenance supplies, you can deduct cleaning supplies used on your properties. Another principle to keep in mind while building your list of deductions is the difference between deductions that apply to your business as a whole and deductions that apply to specific properties. When you use certain supplies only on one property, you may need to deduct them for that property and not for your other properties. If, however, you purchase supplies and use them across properties, you'd write them off for the entire business.

  • Cleaning solutions

  • Cleaning rags

  • Vacuums

  • Mops

  • Scrub brushes

  • Dusters

  • Gloves

  • Mop buckets

Office

There are many office items you can write off, but one item that most landlords want to know about is computers. Can I write off my newly purchased computer? As things currently stand, yes, you can write off 100% of your new computer in the first year of purchase. This is a new change available to business owners because of the Tax Cuts and Jobs Act (TCJA).
Since computers are considered qualifying property and are no longer classified under the TCJA as "listed property" (property determined as easily used for both personal and business reasons and that requires you to keep strict usage records to prove business use), they are subject to bonus depreciation. Under bonus depreciation, you can deduct 100% of your qualifying property purchase in the year you purchased it. This means your newly purchased computer - either new or used (new to you) - no longer has to pass the 50% business-use test to be written off in full the first year of purchase. So, write off that newly purchased business computer of yours with confidence.

Now let's look at a list of other office supplies and equipment you can generally write off:

  • Printer

  • Printer ink and toner

  • Printing paper, folders, labels, binders

  • Pens, paper, staplers, thumb drives

  • Office furniture

One important deduction to note here is if you use software like TenantCloud, which is cloud based and has a cloud-based app, then you can consider part of your phone as equipment, and potentially deduct part of your phone bill.  
As a landlord, these are some of the basics of deducting supplies and equipment. If you have more detailed questions or nuanced information needs, be sure to consult a tax professional.

What other tips do you have for landlords at tax time? Leave a comment below. We'd love to hear your thoughts or pieces of advice on this topic.