Every Landlord's Tax Deduction Guide

by Stephen Fishman

If you own rental property, you should be taking advantage of the many tax write-offs available. Every Landlord's Tax Deduction Guide gives residential landlords the plain-English guide they need to save money on taxes -- without the services of a high-priced accounting firm. This book explains how to maximize your deductions. Find out how § fill out IRS Schedule E § take real estate tax credits § figure out if an expense is a repair (deductible) or an improvement (depreciable) § maximize your depreciation deductions § deduct losses arising from real estate ownership § keep proper tax records § deduct home office, travel, casualty losses – and much more Every Landlord's Tax Deduction Guide is comprehensive yet easy to read, jam packed with interesting and relevant examples. The 3rd edition is completely updated to reflect the latest tax information and numbers. Every Landlord's Tax Deduction Guide gives small residential landlords – who can’t afford to hire high-priced accounting or law firms – the guide they need to save money on taxes.

Genres: Finance, Business, Money, Law, Nonfiction

446 pages, Paperback

First published February 1, 2005

Reviews

[DA GB · Rating 3 out of 5]

This and other books on managing rental property seem to gloss over or ignore the 800 pound gorilla in the room. That is, a punitive tax system that taxes...not profit...but cash-flow. Profit being defined as what you have left after ALL expenses have been paid. A tax system that encourages debt rather than thrift and savings…short-term fixes rather than long-term solutions…"slum-lording" rather than land-lording…. and discriminates against older investors.

Example: you have a leaking roof on your rental house. It’s an old roof and should be replaced. You could 1) spend $500.00 and patch it with tar and tar paper, or 2) spend $3,500.00 and have it torn off and a new roof installed. If you choose option one, you can deduct the entire $500.00 as a repair on this years taxes. However, if you choose option two, you must depreciate the $3500.00 over 27 ½ years.

Therefore, by doing it the right way...the responsible way...the long-term way...you can only deduct $127.27 from your taxes this year. Doing it right you are in the hole for 27 ½ years.

Now lets say you are 65 years old to begin with. What are the chances of you even living to be 92.5 years old??? That’s how old you would have to be to realize a return on your $3500.00 investment in this roof. Not factoring in the depreciating worth of a dollar over time, and ignoring the fact that you may need yet another roof before the 27 ½ years are up.

Some things can be depreciated over shorter times, but it all has the same effect. And consider that the government still taxes you as if that roof only cost you $127.27. Even though you took $3500.00 out of your pocket, the government only lets you put $127.27 back in before paying taxes on the rest.

That is why rental property always looks so much worse than property occupied by the owner. And that is why there are so many “slum-lords” out there.

[Derek · Rating 5 out of 5]

I am not sure what the going rate for gold is but I feel safe in stating the old cliche about this book being worth its weight. Even if you have your accountant file your taxes for you there are some thing they might not be aware of or strategies that you can take throughout the year to better your position come tax season.

Taxes can be a little dry and while this book may not cater to the engrossing stories that others might try to use to combat that fact, it successfully counters by providing densely packed information useful to both the current and prospective landlord.

I could not have been happier with this purchase and will continue to use this book as a reference as I prepare my taxes and maintain and plan my rental business. The one caveat is that a new version may be required to account for recent changes in the tax code but this is money I am more than willing to spend.

[Will Smith · Rating 5 out of 5]

he book is, of course, a dry read but is packed full of info for someone looking for a comprehensive introduction to the subject. Would definitely recommend.

My notes:

Start up costs: Cost of personal property (computers, furniture, dishes) can all be deducted with bonus depreciation under Section 179, can even claim the cost of the book!

Set up a separate checking account for better record keeping

Classify spend as a repair instead of an improvement even if the improvement is eligible for bonus depreciation because the depreciation leaves you with a bigger capital gain later

Safe Harbor for Small Taxpayer (SHST): essentially allows capital improvements that would otherwise need to be deducted thru bonus depreciation and taxed as recapture rate upon sale, cap is lesser of $10,000 or 2% of the unadjusted basis (ie the purchase price excluding the value of the land with a cap of $1m), $1m limit applies to each property (can own multiple and get $1m each time), if spent $5k on $500k house for a new roof could claim it as an expense under SHST rather than putting it thru as a capital improvement and depreciating over the life of the roof, any expenses taken on the Routine Maintenance and De Minimus safe harbor spending (see below) count towards the SHST limit

Routine Maintenance Safe Harbor: main test is that repair must be expected to occur every ten years, if it doesn’t that is okay as long as it was a reasonable expectation, best to create a maintenance plan for the property and keep on file in case of audit, examples would be HVAC servicing, painting, cleaning gutters, inspecting sprinklers, there is no limit unlike SHST

De Minimis Safe Harbor: deducting low cost items that don’t qualify for repairs or improvements, examples would be a new stove, capped at $2,500 per item (includes all fees like delivery and installation), counts towards the SHST cap

Betterments: Rent the property then do expenses later. If buy and paint wall before renting it is considered an improvement (added to purchase price and depreciated). If done after then can classify as expense. Cosmetic changes (paint, floors) can be expensed but remodels must be capitalized and depreciated

Depreciation schedules: IRS Publication 946

Cost segregation study: ballpark cost $5-10k but can use DIY software (pg 179), look at IRS Guide called Cost Segregation Audit Techniques Guide, make sure to consider land improvements (fences, landscaping, etc) as they can be taken out of the land value which is not eligible for depreciation, depreciation separately claimed on personal property is reclaimed at ordinary income, personal property cannot be 1031ed but does depreciate faster so the amount of value of the personal property in later years is quite small, use this calculator to estimate how much it could save (www.kbkg.com/costsegregation/calculator)

QBI: can deduct 20% of net rental income (qualified biz income), if AGI is too high then capped at 2.5% of purchase price

Things to know/do/ask before buying: look up the undivided interest for a condo in its deed to calculate the value of the land

1031: Can exchange any property for any property as long as new one is worth at least as much, if convert a rental into a permanent residence it’ll qualify for the $500k personal residence exclusion as long as live in it for 2 out of 5 years

Those meeting the real estate professional exemption (500hrs or 100hrs and no one did more hours) qualify for the real estate professional exemption which allows real estate loses to against W-2 income as they are “active losses”. They are also not subject to the 3.8% net investment income tax (NIIT or Medicare contribution tax) if AGI is +$250k. Spouse hours count towards the 100hr material participation threshold if filing joint tax returns. Make sure to file an “election” with the tax return to group all activities as one otherwise you have to materially participate in each property individually (pg 368).

Make sure to log time with accurate records. Qualifying time for the 100hr rule is found on pg 375 and 376

Schedule E requires each property have its own P&L so expenses and income need to be maintained separately.

[Nancy Carr · Rating 3 out of 5]

Of course, this is a dry read, but helpful if you own investment properties to keep yourself legal to take as many deductions as legally possible.

[Jackie · Rating 5 out of 5]

Yes, I'm giving a tax book 5 stars. Possibly because it gave me a sense of reassurance, rather than because it was well written or had any spectacular qualities.

Also, none of the other land-lording books I read gave any passing thought to tax deductions, and I learned that they are a HUGE part of the land-lording bottom line. I'm kind of in a state of shock at how mislead I was by some other texts regarding that completely ignore taxes with "see your tax professional", while nickle and dime-ing other factors.

[Kevin · Rating 3 out of 5]

THIS BOOK WAS A LAUGH RIOT. LAUGH OUT LOUD FUNNY FROM BEGINNING TO END. I BUSTED A GUT LAUGHING.

No it wasn't. But there was some good info in there, presented well. It should carry the subtitle: More Reasons You Should Hate Your Landlord, That Sniveling Shylock, Him And His Big Fat Tax Shelter.

[Cheryl · Rating 4 out of 5]

I am still working may way through this book. While it is a dry subject, I have found the book very informative, nicely organized, and well-written. I now feel much more knowledgeable on the subject of landlord tax deductions and will be able to make better decisions and be more prepared for tax season. Buying this book was money well spent.

[M · Rating 4 out of 5]

useful

[Edward · Rating 5 out of 5]

Great insight! Very well documented and detailed! Excellent author!