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Tax Tips for Rental Property Owners

Among the many benefits of owning an investment rental property are the tax breaks that owners can claim each year. Some years, these tax benefits might be the only profit an owner will see. This is why it is so important that you are filing your taxes correctly and taking advantage of every tax benefit available. Here are a few tips that can help:

Deducting Expenses

Owning an investment rental property requires some maintenance each year. It’s important to keep track of maintenance expenses, as many of them are tax deductible. Some of the most common tax-deductible expenses for maintaining a rental home include the following:

  • Mortgage Interest
  • Insurance Premiums
  • Advertising
  • Accounting Fees
  • Legal Fees
  • Cleaning and Maintenance
  • Utilities
  • Commissions Paid to Leasing Agents
  • Any Costs Related to Procuring a Mortgage
  • Travel Expenses

Improvements vs. Repairs

One area that can be confusing for rental property owners is knowing the difference between a property improvement and a repair. Repairs can be written off, improvements take longer to recoup. If you find that your home needs specific small repairs, such as a cracked window or repairs to the flooring, you can add those expenses to your tax deductions for the current year. With home improvements, such as upgrading the flooring, only part of the expense can be claimed in the current year. The rest will be recouped as the property depreciates over several years.

Net Loss Claim

In some situations, the repair, maintenance and operating costs of a rental property exceed the amount of rent the owner is able to collect in a year. When this happens, it is considered a rental loss. A rental loss can also be claimed even when the amount of rent is higher than maintenance expenses because owners are allowed to deduct or depreciate a portion of the rental property.

When a rental loss occurs, you may be entitled to additional tax deductions. There are some hoops to jump through to prove this to the IRS, but it may be worth looking into if you took a significant hit on rent in a particular year.

There Are Limits

As you become more familiar with the IRS policies regarding rental properties, you’ll begin to discover many of the tax benefits for property owners. However, it is important to know and understand the limits. Travel expenses are a good example. You can deduct expenses incurred while traveling to your rental property to collect rent or to perform maintenance, but if you choose to travel outside of your local area, you cannot write off the entire expense.

RPM East Valley has been working with investment property owners throughout the Phoenix area for many years and continues to offer excellent service. If you need help with keeping your rental property leased with the best possible tenants, call us and let’s discuss what we can do for you.

Handling the Security Deposit

Most rental home leases in Arizona require a security deposit upfront to offset any repairs that may be necessary at the end of the lease. The security deposit is paid by the tenant in addition to the first month’s rent and can be refunded in part or in full at the end of the lease agreement based on the condition of the rental home.

Landlords use security deposits as a sort of insurance for their properties. The idea is that, if the tenant knows they are entitled to a refund of their deposit at the end of their lease, they will do their best to keep the rental in good shape. In some cases, a tenant will vacate a property early without any notice or leave the property in poor condition. The security deposit can then be used by the landlord to pay for repairs that need to be made.

As an investment property owner, it’s important that you have a clear understanding of how to handle security deposits so that you don’t risk bigger issues down the road.

Security Deposit Amount

According to Arizona state law, a landlord cannot demand more that one and one-half month’s rent for a deposit and any prepaid rent combined. So if the rent on your property is $1500, the most you could ask for a deposit is $2250.

Most landlords ask for a security deposit that is right around the same amount as one-month’s rent.

Move-Out Inspection

At the end of the lease, it is very important that you do a thorough inspection of the property right away. This includes checking every closet, cupboard, cabinet and drawer. Inspect the flooring, doors and windows. Check the condition of the bathrooms, including sinks, tubs and toilets. It’s also a good idea to bring a camera and pen and paper to document what you see.

The cost for any repairs or replacements that have to be made that are above and beyond normal wear and tear or that are not part of the lease can be deducted from the security deposit.

According to the law, you have 14 days after the final inspection to add up these costs and then return the balance of the deposit to the tenant. It’s crucial that you get this done in 14 days or tenants can take legal action against you. In some cases, tenants have been awarded up to 3 times the amount of what was withheld.

Some investment property owners prefer to have an experienced property management company like RPM East Valley handle the security deposit process for them. A third party can help avoid tension and emotion between the landlord and tenant.

To learn more about proper security deposit tactics and how we can help, call RPM East Valley today at 480-719-1243.

The Pros and Cons of Green Rental Properties

We’re seeing more and more homes in the East Valley of Phoenix adding energy efficiency features such as solar panels and water saving and collection devices. These upgrades definitely add value and decrease utility costs for homeowners, but how does it impact rental properties?

Many property owners wonder if adding these features to their rental homes would help attract more renters or if it would allow them to charge more for rent. Here we take a look at some of the pros and cons of “green rental properties.”

Pros

  • Tax Benefits – One of the biggest advantages to adding energy efficiency features to a home is in the form of tax benefits. There can be both federal and state tax benefits each year depending on the equipment installed and the maintenance of that equipment. This is definitely a plus for property owners.
  • Help Your Property Stand Out – Another positive for adding maintaining an energy efficient rental property is that it can help your rental stand out in an already competitive rental market. Some tenants are aware of the advantages of living in a green rental home, including lower utility costs. This may give your rental home an edge in keeping it occupied with well-qualified tenants.

Cons

  • The Cost – Adding features like solar panels or wind power devices is definitely not cheap. While prices continue to drop, it can still be fairly expensive to purchase these features and have them installed. A rental property owner must carefully weigh the potential return on investment before moving forward.

There are other energy saving techniques that might still have an impact and are much more affordable. Adding a high quality window tint, for example, has shown to significantly reduce the cost to cool a home.

At this point, it’s hard to say with any degree of accuracy whether or not adding energy efficient features has actually impacted rent amounts. There hasn’t been enough information collected to know for sure if a rental property owner can ask for a higher rent. Still, the lower utility costs and the fact that green homes are better for the environment will definitely make them more desirable.

If you are considering the idea of adding some of these energy efficiency features to your investment property, it’s probably a good idea to do things one step at a time. Rather than sinking a bunch of money into several upgrades at once, start with one this year and then consider your next upgrade for down the road.

For help in maximizing your exposure to potential renters and maintaining your rental property, be sure to give RPM East Valley a call – 480-719-1243.

What To Look For During Move-Outs and Move-Ins

Owning an investment property in the Greater Phoenix Area requires you to be proactive when it comes to inspecting your property. You cannot expect that your property will continue to hold its value if you are not taking precautions to keep your property in good shape or at least protecting yourself by claiming part of the deposit to pay for damages that may occur.

A careful inspection of your property should be made both before and after a tenant moves in or out. This allows you to be fully aware of any repairs that need to happen and ensures your property is protected.

Here are some of the most important things to look for as you inspect your property:

Appliances Are in Working Condition

If the use of existing appliances is part of the lease agreement, you need to check that these appliances are in good working condition. A faulty refrigerator or leaky washer can lead to major damage and huge repair bills down the road. Your tenant will have much less incentive than you do for keeping appliances working well. Don’t count on them to notice small issues. Address these before tenants move in so you know your property is safe.

It’s equally important to inspect appliances during the move-out process to see if any damage has occurred. In some cases, a tenant should be held responsible for damage that is above normal wear and tear.

Ceiling Fans

Ceiling fans are considered a luxury for most homes are not cheap to install or replace. Be sure the ceiling fans are working properly before your new tenant moves in. If you don’t check ceiling fans before your tenant moves in, they may be able to claim that the fans never worked during their lease period, leaving you in a tough position.

Windows and Doors

Because they are used so frequently, windows and doors can often become damaged during the tenure of a lease. Be sure that you carefully inspect windows and doors that they are in good working order before a new lease begins. This will prevent complaints from your tenants.

At the end of each lease, check the doors and windows again. Here is where small damages can go unnoticed and leave you in a bind later on down the road.

One way to completely protect yourself from the damages and repair costs that come with owning a rental property is to align yourself with an experienced and knowledgeable property management firm like RPM East Valley. We take the condition of your property seriously and set the proper expectations with your tenants.

To learn more about what we offer, give us a call at 480-719-1243.