As a property owner, there’s a lot to get together for tax season.

There’s no getting around it – tax season is stressful for property owners. From claims to deductions, paperwork, and more; there’s a lot to keep on top of.

If you’re an owner and want to find out how to make this tax season stress free continue reading below.

1. Know Your Deductions

There are plenty of deductions that coincide with real-estate investments. As an owner, you’re basically able to deduct any expense directly tied to the operation, management, and maintenance of the property. Meaning, even things like property insurance and tax, management fees, mortgage interest, and maintenance costs are applicable.

But, it doesn’t end there. Since deductions cover everything it takes to run the business even things like advertising, marketing, office space, equipment (computers, business cards, stationary, etc.), travel, and consulting fees.

Just be sure to keep detailed records and receipts of what was purchased so you can prove to the IRS what the cost was for in case of an audit.

2. Depreciation Costs

Did you know that you can deduct depreciation as an expense on your taxes? If not, you should. That’s because owners are able to claim depreciation on their properties which can lower taxable income and, in turn, their tax liability. And this deduction can even be taken advantage of yearly.

Just note that the IRS distinguishes the expected life of a property to be at 27.5 years for residential property and 39 years for a commercial property. So, to retrieve the deduction value simply divide the value of the property (excluding the value of the land it sits on) by the value of the expected life of the dwelling.

But, be aware that there may be a standard income tax rate applied on the depreciation value claimed (known as depreciation recapture). So, it may be a good idea to speak with a professional to determine how much (if anything) is owed.

3. Incentive Programs

There are two government programs that were specifically developed to incentive real-estate investors. The first is the 1031 exchange. This program is designed to incentivize investors to reinvest their profits into new deals. To be eligible for it, a new property purchased in the given tax year needs to be of equal or greater value than one that was sold. If this is the case, then owners can defer paying capital gains on the sale.

This program can also be used multiple times. However, owners need to be aware that when they cash out they may be on the hook to pay for any taxes owed.

The second program to be aware of is designated by the US Department of Treasury and known as opportunity zones. This program was designed to encourage investors to put money into developing low-income or disadvantaged neighborhoods.

With this program, owners are able to qualify for a tax break if they place money into a Qualified Opportunity Fund and use it to improve a specific area.

Owners will then be eligible to defer paying capital gains immediately and are given the opportunity to grow their capital gains by 10% if they hold the sum for five years (15% for seven). And, they can even avoid paying capital gains altogether if they remain invested in the fund for ten or more years.

As an owner, just be sure to take full advantage of these tax benefits. Depending on your business, purchases, and location, you might even be eligible for more than we’ve mentioned above. So, consider getting some professional help this tax season by speaking with us at 407-328-5001.

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