CategoriesInsurance, Investing, Mortgages

Tax Time Tips For Rental Property Investors

While owning a rental property can be a terrific way to bring in income, those extra dollars can make things complicated when it comes to preparing a tax return.

Fortunately for the 15 million people who own rental properties in the U.S., there are ways to make tax season a little more manageable:

• Store your receipts, bills, and statements during the year. This will make it much easier to locate and organize them at tax time. Create an envelope or folder for each property, and put all of your receipts in there during the year. Do the same for regular bills such as the mortgage, property taxes, insurance, utilities, etc.

• Know what property each check comes from. You can record this with your bank deposits in your checkbook or a spreadsheet or rental property software.

• Keep good rental payment records. You probably get a lot of checks-and even cash-from your tenants during the year. It can be really hard to figure out at tax time if you don’t stay organized during the year.

• Separate security deposits from rent payments. Security deposits are not considered income if you intend to return them to the tenant, so make sure these deposits are separated from rent payments.

• Flag expense receipts. Some expenses are hard to classify properly for the IRS. When you replace the faucet in the bathroom, is that considered a repair or a capital improvement? It makes a big difference to Uncle Sam because 100 percent of repairs can be deducted this year, but capital improvements must be deducted over time. When you’re not sure, flag those receipts so you can later discuss them with your accountant. Keep them in a separate place or flag them in your expense journal.

• Lastly, don’t forget the mileage deduction. You probably rack up a lot of miles driving to and from your properties and those trips to the hardware store. It can be tedious to keep track of the mileage, but it really pays off since the IRS allows you to deduct about 45 cents/mile. To make it easier, use an Internet map service such as MapQuest to look up the mileage for common trips-like between your home and each property.

• Use rental property software like Quicken Rental Property Manager 2.0, designed for people who own up to 10 properties and 25 total units. It makes it easier to file taxes and manage rental property income and expenses. This can help eliminate hours at the end of the year preparing for that Schedule E. Using the software, you can simply print the tax report and transfer the data to the form, give it to your accountant, or export data directly to tax preparation software like TurboTax.

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10 Ways To Find Investment Properties

If you really want the best deals in investment properties, you have to increase your odds by finding more deals. Who is more likely to get a cheap apartment building, an investor that looks through the MLS listings and calls it a day, or the one that uses ten resources?

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Here are the ten:

1. Use the internet. Go to a search engine and enter the type of real estate you are looking for, along with the city you want to invest in. You never know what you might find.

2. Talk. Let people know you are looking and sometimes the properties will come to you. There are a lot of owners out there who want to sell but haven’t yet listed their property.

3. Old FSBO ads. If you call on two-month-old “For sale By Owner” ads, and they haven’t sold, they may be ready to deal. Owners often give up the effort, but still would love to sell. Help them out!

4. Eviction notices. If your local papers publish eviction notices, or if you can get the information at the courthouse, it can be useful. A landlord who just went through the process of evicting tenants is a likely seller.

5. Find old “For Rent” ads. Call if they are a few weeks old. Landlords are often ready to sell, especially if the haven’t yet rented the units out.

6. Offer someone a finder’s fee. There are people that always seem to hear about the good deals. Have such people coming to you.

7. Talk to bankers. You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate agent.

8. Find abandoned properties. That’s a pretty clear sign that the owner doesn’t want to deal with the property. He might sell cheap.

9. Drive around looking for “For Sale By Owner” signs. Owners often don’t want to pay to keep the ad in the paper every week, so you won’t see all the properties there.

10. Put an ad in the paper. “Looking for investment properties to buy,” might be sufficient to generate a few calls.

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