Owning an Atlanta rental property is a great way to generate passive income. However, the extra revenue generated may seem daunting when tax time rolls around. Luckily, there are some potentials tax advantages that make property investment profitable. With the help of Atlanta property management, you may be surprised about some expenses that you can deduct to improve the returns on your properties!
Mortgage Interest Deduction
A significant number of property investors rely on a mortgage to purchase their rental units. If you are a landlord who financed an investment with a mortgage, the loan interest accrued will be one of the most significant deductible expenses. You can deduct the mortgage interest as a property expense.
However, you can't deduct part of the mortgage that is included in the principal loan amount. The deduction only applies to the payments made towards the interest charges. On your monthly statement, the two components are listed separately, making it easy to reference. Multiply your monthly amount by 12 to get your total interest per annum.
Work with a property manager and your accountant to review the mortgage interest for your rental property to make sure you deduct everything you can (and avoid deducting anything you can't)!
Deduct Some Operating Expenses
Many of the costs required to operate a rental can be classified as "operating costs" for your real estate investment business. These are the necessary expenses you need to manage, maintain, or preserve your rental property. A property manager can guide you to deduct the amount spent on the items in that specific year you bought them. In most cases, the general expenses to run your business can include:
- Ongoing Maintenance and Repairs
- Advertising and Marketing
- Landlord Insurance
When you hire an Atlanta property management company, they will handle marketing and advertising tasks on your behalf. However, if you pay for an advertising ad in the local newspaper, it becomes a deductible advertising expense.
Don't Forget About Depreciation
Wear and tear will eventually catch up with your investment property. This process is known as depreciation, which also lowers the value of your property. Fortunately, you can claim depreciated expenses as soon as your rental units are available for rent, even before placing any renters. Rental property owners can also apply a depreciation deduction based on the expected lifespan of the property, but it's spread out over several years. It means you can probably make deductions on depreciation each year on your tax return. Additionally, you can claim the value of equipment used to run your property investment, such as your automobile and computers.
However, making these calculations is somewhat complex for new investors or those without adequate experience. Consult Atlanta property management experts to assist you with the different ways to calculate the depreciation of your rental units.
Maintenance and Repair Tax Deductions
Typically, the costs incurred in tasks such as patching holes in the walls, swapping out light bulbs, and fixing busted garbage disposal are tax-deductible. However, not all maintenance costs are deductible and could be considered "capitalization" depending on the nature of the work or improvement to a rental property.
Investors can make certain deductions on repair costs according to the tax code. If you pay a professional to make the repairs and maintenance, you can deduct the labor costs to minimize your taxable rental income. For instance, if you pay a plumber to fix a leaking pipe, it's considered a repair expense. The same applies when you hire Atlanta property managers. Property management fees become a tax deduction!
However, you can't make deductions for expenses used to make improvements on your property. These costs are anything that makes your rental units more usable or makes value improvements. Repairs are necessary to keep your investment in good conditions but do not increase the market value. On the other hand, a property manager can tell you that capital investments are considered a significant modification since it contributes an added market value to your property.
Property Tax Deductions
Property tax applies to tax on real estate and is a deduction that many rental owners overlook. The amount of property tax depends on the location of your property and the value of the property. Work with property management experts and your accountant to accurately report property taxes every year as a deduction!
Hire an Atlanta Property Management Company To Maximize Deductions!
The calculations involved before making the proper deductions on your tax returns aren't straightforward for every landlord. If it's your first rental or you just ventured into real estate to generate some extra income, work with an Atlanta property management company and a trusted accounted to maximize every deduction! Renters Warehouse Atlanta is here to help property owners optimize returns through our expert property management services.
Learn more about what you need from a property management company in Atlanta! Download our free guide.