Rental Property Tax Deductions 2020

Rental Property Tax Deductions 2020


today we’re going to be focusing on
rental property what is a deduction what deductions are important and how we can
keep track of those deductions hi everyone
Stephen Hamilton here for tax talk I want to thank the Kwak Brothers for
having me here I know they’ve been getting a ton of feedback that you guys
have tax questions so they invited me here today to talk about the different
deductions for rental property before we get started I want you to hit the
subscribe button below leave a couple of comments about topics you want to hear
about and don’t forget to share this video with your friends and family I
have a lot of individuals that come to me and ask questions and I know they get
a lot of questions as well so we thought this was a great idea to teach you some
of the basics so your rental property everybody’s worried about what their
rental income is and how they’re going to pay taxes you only end up paying tax
on your net rental income so we take your income minus your deductions equals
your net rental income that net rental income or loss is what we’ll factor into
whether or not you get a tax benefit or if you get a tax bill now the big the
biggest and easiest thing to start out with is your gross rental income your
rental income in and of itself is going to include all of the rents that you
received even if they were prepaid for the next year we don’t include security
deposits security deposits are not taxable income there’s simply a reserve
that is kept there because that money does not belong to you the landlord the
point at which it does become income and we have to include it an income is going
to be that day when the tenant moves out and you write them that letter saying
here are the items that I’m deducting for repairs on the rental so we are not
giving you your security deposit back that’s when you would include some or
all of your security deposit in income that’s really kind of our basics so it’s
going to include any and all receipts if you receive reimbursements for bills
reimbursement for utilities repairs etc those are all going to be rental income
the next item we’re going to talk about his rental deductions
now most people say okay well you can pretty much write off anything that’s
related to that property but what does that really mean those write-offs
are going to start with ordinary and necessary items for your rental so I
have a lot of clients who what they do is they might at Christmastime they
might give each of their tenants a holiday ham or they give them a $25 gift
card that’s a common goodwill business gift and deduction but we have other
items that we’re going to look at some of those are going to be repairs
maintenance we have improvements we have commissions we have legal fees there’s a
wide variety of items so one main item I’m going to start with here is our
cleaning and maintenance so for my properties I have a landscaper that
comes through and cuts the grass maintains the whole landscape that’s an
ordinary and necessary deduction we have to do that we have to maintain our
property we have to keep it clean so my cost for that is going to be a
deduction and I’m going to be able to list that right there on my schedule II
under cleaning and maintenance then I might have somebody who comes in and
touches up the paint on the outside or cleans out the gutters different items
like that that’s also going to be part of my maintenance and that’s a legal
deduction we have other deductions we have repairs we have supplies we have
insurance insurance is going to be a deduction our supplies are going to be a
deduction anything related to and for the benefit of that building is going to
be a regular deduction the big area that we get a lot of question about there’s
two the difference between repairs and improvements and then depreciation
depreciation is a detailed calculation that I’ll try to touch on in the end
here a little bit but that’s really content for another video so make sure
you tell the quoc brothers that you want me to do a video strictly on
depreciation for you guys and you can put that down in the comments below
repairs vs. maintenance is probably gonna be a big huge one that I’m going
to touch on repairs are your everyday the faucet broke the mailbox broke I
need to replace the door handle or a light switch that’s a repair your
maintenance items are going to be the ongoing regular occurring items that you
have happen improvements improvements are they’re tricky ones so if I have a
driveway that’s gravel and I decide I’m going to replace that with concrete a
lot of people are going to wonder if that’s a repair or if that’s a
maintenance item well or improvement items sorry
that is actually going to be considered an improvement item and then depending
upon the cost of that if it’s more than twenty-five hundred dollars or less than
twenty-five hundred dollars is going to determine if I can just take it as a
repair now so let’s say that driveway cost me three thousand dollars to put in
and I upgraded from gravel to concrete in that situation I am going to be
looking at having to depreciate out that driveway now normally that would be
depreciated over a total of fifteen years I know that sounds like a lot but
luckily our tax code has some benefits in it right now under the tax cuts and
Jobs Act I can actually accelerate that depreciation I still have to listed as a
depreciation item but I can accelerate that deduction a hundred percent into
the current year which means I will get a full deduction for that three thousand
dollars but let’s say that that driveway small little parking pad cost me twenty
four hundred dollars so two thousand four hundred I can actually consider
that de minimis and two small for me to have to depreciate so I can actually
then expense that as a repair and that’s caused a lot of confusion over time here
so I’d like to kind of give that explanation where we look at that
threshold of twenty five hundred dollars or not to determine if we even look at
whether it matters is an improvement so first look at twenty five hundred is it
above or below if it’s below 2,500 we can expense it if it’s above twenty-five
hundred I have to determine if it’s a repair or an improvement so I’ll give
you an exam a tree falls onto my roof and it cost me
$4,000 to fix it that $4,000 that I have to repair the envelope of the house even
though I might use a slightly better grade shingle is still going to be a
repair I am returning the property to its original condition because of a
defect an improvement would be okay the roof is about is about due to be
replaced and it’s going to cost me $15,000 to completely strip it reshoot
it tar paper shingles the whole works that
I’m going to have to depreciate over twenty seven and a half years so there’s
a common an easy way to kind of think about that does it improve the lifetime
of the property if it improves the lifetime of the property I’m going to be
looking at it being an improvement and have to be depreciated that’s kind of
the basics on repairs versus improvements thank you everybody for
joining me for tax time today what I want you to do is I want you to hit that
subscribe button leave me a couple of comments down below
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Comments

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    JW JW

    Hey so I need to remove some trees that cracking my walkways and parking lots badly. I also need to fix my decks that are falling apart that lead to my 2 units. I want to fix them but don't have much passive gains to offset.

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    Alex Sanchez

    Awesome video! How do you account for paying for services that’s done in cash? Paying a plumber in cash? Or a handyman that doesn’t hand out receipts? Can you write a receipt with paper and pen?

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