Don’t just think of tax time as a few weeks in April. Of course you should work on tax savings all year long but the end of the year can have the most impact for investors, landlords, property owners, and vacation property owners. There are actions you want to take before December 31 that you’ll benefit from when you file taxes in April. I’m not an accountant so check with yours regarding what you can and can’t do.
In general, tax rates are low in 2017 but might not remain that way for long. Unless you think 2018 tax rates will be lower, you should collect as much income due to you in December as you can. Including January, 2018 rents.
At the same time, you may benefit on the expense side of the equation by paying as many of your real estate related bills early as is practical. Typical examples of expenses that can be paid early include: equipment purchases, miscellaneous services, printing, memberships, insurance, real estate education, cell phone costs, and advertising. If you have employees, you can prepay social security, Medicare, and unemployment taxes. Of course, your biggest expense is probably the interest paid on mortgages.
Those are the most frequent tax deductions and credits but there are other tax savings tips that you might be able to influence before the end of the year.
Depreciation: current tax code allows you to claim depreciation on each property for 27.5 years. Claiming depreciation is a powerful tool for mitigating your overall tax burden.
Repairs and upgrades: complete these early for a tax benefit in 2017 and so your tenants have a nicer place for the holidays. A win-win.
Mileage: use of your own vehicles as well as any specialty vehicles that you rent or lease.
Travel: out of state investment property travel and business conference expenses can be tax deductible.
Home office: space used exclusively for business. A combination office/guest room/home gym isn’t going to qualify.
Casualty losses: aren’t something you want to plan for, but in the event of a disaster, such as a fire or a flood, the IRS allows you to write a portion off as a loss.
Retirement savings: maximize your contributions to IRAs and 401K accounts. If you don’t have one, you can open one before the end of the year.
Charitable giving: there are many charitable giving opportunities that both enhance your standing in the community and lower you tax bill. Sponsoring a charitable event gets you both positive exposure and many of the costs are write offs. You can also contribute to your own retirement through a charitable trust or just make a donation in exchange for a tax deduction.
This is only the tip of the iceberg for tax benefits that you can realize as a real estate investor. There are many others that you and your accountant need to consider. For instance, if you generated any kind of active real estate income, you should consider restructuring your business to minimize the impact of self-employment taxes.
Real estate investing offers big tax advantages. It only makes sense to talk to a tax professional who can evaluate your situation and help you determine if any year-end moves make sense for you.
Please leave a comment about what you are doing to reduce your tax liability.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.