2016 Tax Tips for Landlords and Real Estate InvestorsHousing-Market / Global Housing Markets Feb 19, 2016 - 10:23 AM GMT
As a landlord or real estate investor, one of the most important tasks you face each year is filing your tax return. Even the smallest slip-up can result in major losses or penalties. As such, you wan to be very careful in how you proceed. Let’s take a look at a handful of the top tips for 2016.
1. Hire a Good Accountant
The first step is to hire a qualified accountant. While you have the option to file taxes on your own, it’s best that you pay for the services of an experienced CPA who has worked with real estate investments in the past. If you’re unsure of where to find a good accountant, your local real estate investment club may be able to help.
As experienced investorPhil Pustejovsky says, “It may take time to locate a winner. Be patient and persistent and avoid getting discouraged. They exist.” Remember that it’s okay to interview an accountant before hiring them. Set up a meeting and feel free to ask them questions. Based on the answers you receive from multiple accountants, you should be able to hone in on the one that you feel will get the job done right.
2. Consider All Deductions
As a landlord or real estate investor, you have plenty of opportunities to claim tax deductions. Thoroughly explore all options and make sure you’re doing everything you can to reduce your tax bill. While you won’t be able to look through each of the 73,000 pages in the IRS tax code, there are some good online resources that can point you in the right direction.
The top deductions for landlords include mortgage interest, home office deduction, repairs, maintenance, travel, utilities, management fees, and operating expenses. You can read more about how each of these deductions work bychecking out this article about helpful tax deductions for landlords.
3. Stay Organized
If you want to be a successful and profitable real estate investor, you must learn to love being organized. This is true in all facets of investing, but is particularly important when it comes to filing taxes. If you haven’t documented and filed all of the necessary paperwork, you may run into trouble when it becomes time to file your return.
Throughout the year, you need to keep detailed records of all expenses. The best way to do this is by keeping an expense log and filing the accompanying receipts and documents, both electronically and physically. In the beginning stages you may choose to do this on your own. In the future, it may make sense to hire a bookkeeper.
4. Leverage 1031 Exchange
One of the most important sections of the IRS code you can leverage as an investor is a 1031 exchange. According to the IRS, a1031 exchange says no gain or loss on the exchange of property is to be recognized so long as the profit or loss is immediately reinvested into a property of like kind. In other words, you don’t have to pay taxes on the profits you make from one property if you reinvest it into another property.
Over the long run, this can save you hundreds of thousands of dollars and allow you to amass large amounts of equity without paying a dime of income tax. Tips like these help some investors become much more successful than others.
Don’t Make Mistakes
Precision is the word when it comes to filing taxes as a landlord or real estate investor. You want to avoid making mistakes or setting off signals that encourage the IRS to take a closer look at your return. When the IRS sees smoke, they’re going to do everything they can to find the fire – even if it’s an accidental one. Keep these tips in mind and you’ll do just fine.
By Larissa James
Copyright © 2016 Larissa James - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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