Smart landlords know that it’s time to start planning your tax process now. Your Schedule E will be where you record all your rental income, less your expenses such as management, property taxes, insurance, mortgage interest, and depreciation. The net amount, whether income or loss, will flow into your main 1040 form.
You want to determine if having a few last minute expenses would be beneficial to your tax bill. Keep in mind, we are not tax professionals, attorneys, or CPAs. Rather, we’ve gathered ideas that you should talk with your tax professional about that can be implemented quickly for maximum benefit.
There are two types of expenses: Current Expenses and Capital Expenses. Capital Expenses are anything that increases the value of the property or extends its life and must be depreciated over multiple years. Think about these as things that typically cost hundreds or thousands of dollars.
Current Expenses are typically one-off items that keep the property in “good working condition and habitable.” The entire expense can be deducted from your taxes in the same year that it was incurred. And don’t forget, preventive maintenance costs are always currently deductible operating expenses. So get cracking over the next three weeks to take advantage of these tax deductions.
Change the locks
Ideally, this is done every time you change tenants. But it’s not always, most typically in single-family homes. If it’s been more than two tenants since you changed the locks, call a locksmith and have it done. It’s a fast and relatively inexpensive process. And your tenant will thank you for it.
There’s nothing more frustrating as a tenant than knowing your heating bill is bigger than it needs to be. Take an afternoon and look at all of the weather stripping around doors and windows. Is it still working well? Are there gaps or places it’s worn down? Replace it. Not only will it improve the heating bill, it will also help keep bugs and rodents from coming in looking for a warm place to take up residence.
Your rental has them (or should). Have they been checked recently? Fire, carbon monoxide, and radon detectors all need to be checked at least twice a year and should have batteries replaced once a year. Look at the coverage guidelines. Do you need to add another detector to ensure safety?
Filters and ducts
Now is the perfect time to replace the filters on your heating system and stock up on replacements to have on hand. And if you’re looking for more potential deductions, assess if the ductwork needs to be cleaned out. Most heating repair companies will come out and do a free estimate on duct cleaning. Don’t forget to check the dryer vents as well!
It’s not sexy, but it’s important. When you do a walk-through always flush the toilets to ensure they fill and seal appropriately. The rubber will wear out over time and the leakage will affect the water bill.
These are just a few ideas to get you started as you’re thinking about your tax bill for your rental property – and ways to maximize this year’s deductions.