Working on rental property tax deductions

Landlord Tax Tips to Use Now for a Better New Year

The end of the year is a hectic time for everyone  – including rental property owners. But as December 31st approaches, you have an opportunity to prepare for tax season, increase your deductions, and set goals for the coming year. Setting aside time to review your books before year end saves you both time and money. That’s why we’ve put together an outline to help you review your books – and business – so you can finish this year confidently. 

Ready? Let’s get started.

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How to Get Your Rental Property Management Books in Order

If you’ve let your recordkeeping slide a bit, now is the time to catch up! Without accurate financial reports, you can’t make informed decisions about your properties or your business. But remember, having your books in order means more than just having all the transactions up to date. Follow these accounting best practices to make sure your books are ready for year-end:

If you need help getting your books together for this year sign up for REI Hub at 75% off! Their cloud-based accounting software is designed for rental property owners and has income and expense tracking, transaction feeds linked to your bank accounts, property- and unit-level reporting, Schedule E exports, and more. Best of all, your 2023 TurboTenant data will sync automatically, helping you finish your books in record time. But you need to hurry – this deal won’t last long!

When your books are in order, you’ll be well positioned to decide how to maximize your deductions for 2023 and set goals for 2024.

Maximize Your Landlord Tax Deductions

With your books ready, you’ll know what your cash flow situation is, where you have room left in your budget, and what funds you have to work with. For many investors, increasing spending before the end of the year keeps them in a certain tax bracket or decreases their tax liability. If you’re in that boat, consider these options to maximize your deductions for this year:

1. Pay Bills Early

For cash basis businesses, paying bills early – like paying January’s bills in December – will increase your expenditures for the current year. If those costs are for deductible goods or services, you’ll increase your deductions for this year.

Remember, rental property owners can deduct mortgage interest. Prepaying your January mortgage will increase your interest deduction for this year.

2. Record Your Travel Costs

If you travel for your rental property business, the expenses may be deductible. Remember to record your mileage along with hotel, airfare, and meal costs.

3. Purchase Fixed Assets

Capital improvements or fixed assets are significant purchases that can affect the value of your property, as well as your annual depreciation deduction. If your property will need a new appliance, roof, or HVAC system soon, consider making the purchase this year.

4. Record Depreciation Expenses

Be sure to record an annual depreciation expense for all the properties and other fixed assets owned by your business. Residential property and capital improvement projects depreciate over 27.5 years, so the deduction for a building purchased for $300,000 is over $10k annually. That’s a big tax break!

5. Account for Disaster, Casualty, or Theft

If disaster, casualty, or theft affected your rental property business, the losses may be tax deductible. And if you’ve already received a reimbursement from your insurance company, make sure the payment is recorded correctly.

Pro Tip:

Not sure what you can deduct from your taxes? Check out our comprehensive list of rental property tax deductions so you don’t miss a dime!

How to Set Financial Rental Property Management Goals

As you review this year’s financial reports, tenants, and property conditions, use that information to decide what your goals for the coming year should be. To that end, you should:

1. Treat Budget Variances as Red Flags

Review your budget projections for this year and compare them to the actual figures. If your property is consistently over budget in a category, what can you do to decrease that cost? Could you renegotiate a contract with the service provider? Does the property need energy-efficient upgrades? Is it time to raise the rent?

No matter what action plan you decide on, use these budget variances to create a more accurate budget for next year.

2. Review Key Performance Indicators

Your key performance indicators can also show you which areas need attention. If you’re not happy with your debt service coverage ratio, focus on debt repayment in the new year. If your vacancy rate is an issue, updating your tenant screening and communications may be a better priority for you.

3. Plan Improvements

Don’t let large expenditures catch you by surprise. A capital spending study helps you estimate how much an improvement will cost and when you’ll need to make the improvement. This will allow you to build up your savings account, research service providers, and be ready when it’s time to update the property.

4. Set Up or Strengthen Your Safety Net

Your cash reserve helps you cover unexpected expenditures and fund planned spending. If you don’t have one, or your reserve is lower than you’d like, make saving a priority for the coming year. Remember, we recommend having at least three to six months’ worth of expenses saved!

5. Update Your Portfolio

Are you ready to grow your portfolio? Or maybe it’s time to sell a property that’s not performing well. Both buying and selling rental property take time and research. So if you need to update your portfolio, think about how that will affect your time and budget for next year.

Reviewing your rental property books before the end of the year helps get you ready for tax season – plus it gives you a chance to maximize your deductions for this year. With up-to-date financial reports, you can also set goals for your real estate investments for next year. Leverage TurboTenant’s integration with REI Hub and this annual review outline to finish out the year knowing your business is in order. We can’t wait to see what you do next year!

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