A major reason for owning a rental property is the tax advantages, but many don’t end up utilizing the advantages because they get lost in the details. As a real estate investor you need to make sure to take advantage of all the benefits. The advantages are the deductions and expenses that go with your rental.

Keep in mind that the IRS has postponed the Tax Deadline to 7/15/2020 due to the Coronavirus pandemic.

Tax season during COVID-19

Here are five tips that will help you this tax season:

1. Get a software application that helps you track costs and save receipts

Keeping track of paper receipts and expenses can be simple if you find the right software solution. TenantCloud, Quick Books and some others have free software that helps you keep track of your receipts and categorize your expenses. Your time is very valuable, so don’t spend it at the end of the year digging for old receipts or old tax boxes. When making a purchase snap a photo on your accounting app and add it to the expense. By utilising cloud based apps you can make life easier and information more accessible when you want it.   

2. Depreciation is your friend

Depreciation is not an annual cash-flow expense, but a deduction from your gross rent income. This helps in increasing cash flow while lowering the tax burden.

3. Interest expense is a good thing

If you have a loan on your rental, then that is a great thing. Borrowing on your rental allows you to combine the depreciation expense with the interest paid on the loan to maximize your cash-flow while lowering your tax burden. It does it by allowing you to use money that would have been spent buying the house. It also allows renters to make rental payments of which are used to pay down your rental house while it appreciates in value.

4. Utilize the expense of your car deduction

Your car can be a great value in your rental business. If you drive your car to get any supplies for your rental, show your property to a prospective tenant, look at a maintenance request and any time you are driving somewhere for your rental it can be deducted from your rental income.

5. Office expense and other costs

If you use a cloud based software for managing your rental then your phone expense, phone plan, home internet, laptop, are all expenses that can be portioned to a rental expense. Other materials and supplies that are used for the rental can be expensed. Educational expenses, which can include travel expenses, food and entertainment (50%) if you went to a seminar or anything in relation to being a landlord.

Being a landlord comes with ups and downs. Don’t let tax season be a downer. You can increase your tax deductions by finding current expenses from everyday life that involve your rental and itemizing those expenses. The key is to keeping track of them and now that there is cloud based rental accounting to help - your life gets easier.   

In the meantime, stay safe!

The Tax Implications of Becoming a Landlord: Is It Worth the Deal?

Make Your Tax Season Easier: Maximize Tax Deductions, Automate The Process

The Landlord’s Guide to Tax Season 2020: IRS form 1099, form 1065, Section 1031, Schedule K-1, form 1120-S