Category: Depreciation

Tax Tips for Rental Property Owners , Part 1

Certain rental property expenses can be deducted from your rental property income to determine your profit or loss for a given tax year.

Time for Rental Property Owners to prepare for next year’s income tax return

With the end of the 2016 income tax filing season, it seems a good time to review two tax tips for rental property owners where there is partial personal use or not personal use of an owned dwelling.

This post will address which expenses are deductible. The next post will address the difference between repairs and improvements and how the different ways each can affect your income tax return.

What are deductible rental property expenses?

Certain rental property expenses can be deducted from your rental property income to determine your profit or loss for a given tax year. Some of the expenses you can deduct in the tax year you pay them are:

  • Mortgage interest
  • Real estate taxes
  • Property insurance
  • Utilities
  • Cleaning and maintenance costs
  • Supplies  (For example, garbage bags, brooms and mops used only to maintain the rental property. No fair bringing your broom from home to take care of the rental property)
  • Pest control
  • Lawn care and landscaping
  • Trash
  • Repairs, including the cost of labor
  • Credit and employment checks for tenants
  • Management fees if you use the services of an outside property manager
  • Legal or professional fees
  • Travel expenses (Keep records of automobile mileage, and taxi, train, and bus fees for all of those trips to Home Depot or to your local hardware or plumbing supply stores)
  • Advertising (The cost of placing ads for rental apartments in local papers)
  • Utilities (National Grid, Consolidated Edison, New York City Water and Sewer, and payments made to your oil company.

Why you need a separate checking account for your rental property

Owning a rental property is completely different from owning a one-family home. To make sure your experience as a rental property owner is a profitable one, get a separate checking account which you will use only for all of your rental property income and expenses. This account will accomplish two important tasks:

  1. All income and expenses for the rental property will flow into and from this separate account, making it easier for you to track what you spend to maintain the property and the income you’re receiving. This is easier than trying to remember if a certain Home Depot entry was for the book-case in your living room, or a new ladder for your rental property.
  2. Once all the income and expense information for your rental property is in one place, gathering the information necessary to prepare your income taxes is much simpler.   Since the 75 days of income tax preparation season are not the time to finally try to make sense of your financial life for the past year, I give a small discount to those clients who come in with all of their expenses on one or two pieces of paper.. If I must do client recordkeeping, the client will pay a premium for the extra time and energy I must expend to complete their return.

The costs of maintaining your one-family personal home are not deductible.

It’s important to know how the owners of a one-family dwelling they personally occupy are limited about how certain expenses affect their personal income tax return. With a one-family home, you can only itemize your mortgage interest, and real estate taxes. It is imperative to keep records of any improvements made to the house as this will increase the basis when the house is sold, resulting in a lower possible tax bill.

You can find more about this subject in Publication 527 on the Internal Revenue Services website, https://www.irs.gov/pub/irs-pdf/p527.pdf .

Income Tax Returns Aren’t Toilet Paper

“When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:”

Income tax returns are not toilet paper.

Today, while driving through my home city of Brooklyn, NY, I passed the office of a national income tax preparation franchise. They had a sign outside their office that read, “$50.00 off your income tax return today!!”

Get Your Toilet Paper Here!

When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:
  • How many CPE classes did you attend last year?
  • Which, if any, professional organizations do they belong to?
  • What percentage of the returns you prepare are audited each year?
  • Do they have a Federal PTIN?
  • Do they have a New York State Tax Preparer Certificate of Registration?
  • If they must relocate their office, how will they inform you of their new address?
  • For how many years have they prepared income taxes?
  • Are they aware of the EITC Due Diligence rules?
  • Will you sign my income tax return?
  • What is their Privacy Policy regarding the protection of your personal information?
  • Do they make up their own itemized deductions so you will receive a larger refund?
  • How many times have they been cited for filing fraudulent income tax returns?

Bottom line, stop worrying about today’s sale on income tax preparation. I’d be more concerned about the skills and professional manner of who is preparing my return.

In addition to providing his clients and seminar attendees (many of whom become his clients), with insurance and income tax strategies and solutions, Eustace L. Greaves Jr.,  also prepares income tax returns for over 150 of his clients annually. To contact Eustace L. Greaves Jr., about his insurance and income tax services, feel free to call him at 718-783-2722, or by email to [email protected].

10 Top Reasons You Need A New Tax Preparer |

“Some of you though really don’t know whether or not you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return. And the thought of taking a group picture while doing 2-5 for tax fraud really doesn’t appeal to you.”

10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer

Well, soon another new and exciting (Another Federal government shutdown, anyone?) income tax filing season will begin. And as visions of income tax refunds dance in your heads, it is a good time to think about who you will hire to prepare your income tax return next year.

From some of you, it’s a no-brainer: Your last preparer’s actions placed you on the IRS watch list which is akin to being on the world’s worst financial no-fly list.

Some of you though really don’t know whether you are in any danger of an audit which will make your hard-earned money leave your wallet. You aren’t aware of the many subtle ways you can find yourself in hot water with the taxing authorities, but you have this nagging ache in the pit of your stomach every time you sign your return.  And the thought of taking a group picture in stir while doing 2-5 for tax fraud really doesn’t appeal to you.

So here at the Afternoon Show Before My Nap with your host, Eustace L. Greaves Jr., I thought this was a great time to check  the 10 Top Reasons Why It’s Time For You To Get A New Income Tax Preparer!

Reason number 10:

You own and live in a two-family home. Your tenant pays you $12,000.00 in rent, and you have use of 75% of the house. Your tax preparer, knowing you need a big refund, depreciated the house at 100% and shows only $6,000.00 in rental income on your return.

Reason number 9:

You haven’t been to church, any church, in the last 20 years. Yet each year, your preparer says you can claim $10,000. For going to a Church named Church.

Reason number 8:

You receive certified, return receipted correspondence from the IRS. When you show it to your preparer, she smiles and tells you don’t worry, they just want to make sure you receive your thank you note.

Reason number 7:

You’re a receptionist at a medical center. You earn $30,000 each year. Your preparer, preparing Schedule A, gives you itemized deductions of $9,000.00 for uniforms, $3,000.00 for educational seminars, and  $2,000.00 for business-related travel.

Reason number 6:

Lost your 1099 Int and 1099 Div forms? “No worries”, says your preparer. “The IRS doesn’t worry about interest or dividends under $75.”

Reason number 5:

Your return shows three (3) brand-new dependents you’ve never met.

Reason number 4:

Your preparer guarantees you everyone qualifies for the Earned Income Tax Credit. “You earned an income last year, didn’t you?”

Reason number 3:

You ask your preparer if they have a PTIN and they tell you they’ve never liked certain foreign sports cars.

Reason number 2:

Your preparer relocates each year. Luckily you find them. Again.

And now the number one reason Why It’s Time For You To Get A New Income Tax Preparer is:

Your preparer tells you, “Don’t worry, my system never fails. I know how to get you the best refund you’ve ever gotten.”

Thanks for reading. And just in case you don’t understand why these are bad things, you can watch this blog for more information,  give me a call at 718-783-2722 or send me an email at [email protected].

Eustace L. Greaves Jr., is a business owner who provides integrated insurance and income tax strategies and solutions for his clients. He does, however, hate telling you your last tax preparer’s errors have you owing the IRS really big money.

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