To best prepare for the new year as a landlord or property owner, here are four financial tips to follow.
Stay on Top of Taxes
Tax codes can change every year so as a landlord or commercial property owner, it’s important to stay updated with various tax responsibilities.
Federal Income Tax
Federal income tax depends on your filing status and taxable income (any net income your rental property creates). The amount you owe may change from year to year so you will need to fill out Form 1040, U.S. Individual Income Tax Return where you will list all sources of income and any rental income earned in 2024.
State Income Tax
Each state has different rules for filing state income taxes so you should learn and understand your state’s regulations. While income from rental properties needs to be reported, additional tax requirements for sales tax can vary from state to state. Rental properties will have to follow the tax laws of the state that it is located in, regardless if you live in that state or not.
Real Estate Tax
These taxes vary based on location and can be imposed by the county or city your property is in and are often due before the end of the year. Real estate taxes are determined by a property’s assessed value, and will often be used for public services like schools.
Maximize Any Deductions
As a landlord or rental property owner, there are many tax deductions available including repairs and maintenance, office expenses, employees, and legal services. Adjust your financial strategy based on these different deductions.
Repairs and Maintenance
You can deduct up to $10,000 of the unadjusted basis of the property for the cost of repairs and maintenance that took place at your property during the years. This can include cleaning floors, repairing a dryer unit, or even replacing part of a roof or shingles. It’s important to note that costs can’t be deducted based on things that need to be upgraded.
Office Expenses
If you end up renting an office space for work, you could be eligible to deduct those expenses.
Employees
If you own more than one rental property, you might have to hire employees or a third-party vendor to manage real estate investments. Hiring these employees or contractors can potentially offer tax break opportunities.
Legal Services
Enlisting the services of real estate or eviction attorneys can be tax deductible.
Set Financial Goals for the New Year
Once you have reviewed financial costs, tenants, and property conditions, you can then use that information to plan out your goals for the next year. Some great examples of goals include the following:
- Optimize rental rates
- Reduce operational costs
- Establish an emergency fund
- Track cash flow
Speak to Your Property Manager
Property managers are your financial gurus and can help advise you on ways to improve your property’s value and maximize rental returns. Ask your property manager for an end-of-year financial statement that will be a summary of most costs from the year.
At Thayer & Associates, we will work with you so you can gain clear insight into your property’s financial management with our variety of business services such as monthly financial reports, investment strategy, loan acquisition, rent collection, and more.