Deducting Rental Property Repairs

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As the proud owner of rental property, there’s a good chance that you know about and are already using one of the most well-known and popular tax deductions available to landlords:

Repairs are a much-loved deduction, and for many landlords, they represent a significant saving come tax time. They’re popular thanks to their value, as well as the fact that they’re a tangible expense. It’s easy to remember these expenses when you’re doing taxes, and not too difficult to save the receipts throughout the year –especially if you’re organized.

But while this deduction is indeed popular, some landlords aren’t aware that not every repair should be treated the same. While some are able to be fully deducted in the year that they’re incurred, for others, how they’re able to be deducted will vary depending on a few different factors.

The main difference in how these expenditures are treated comes down to one important distinction: is it a repair, or is it an improvement? The IRS also outlines several “safe harbors,” as they call them, under which you can fully deduct many repairs that would otherwise have to be depreciated more slowly over time.

Although making sense of the different distinctions and nuances of the IRS’ guidelines can get a bit complicated, in this guide, we’ll attempt to uncover the main points for classifying and deducting repairs and improvement expenses for your rental.

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Tax Deductions for Landlords: Operating Expenses

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For most landlords, being able to deduct operating expenses can make a big difference on the amount of tax that they owe.

But when it comes to fully utilizing those deductions, that’s where many landlords struggle. After all, there are so many different expenses that you can claim! Additionally, the IRS doesn’t have an exhaustive list of all the eligible expenses, just that they must meet their requirements to qualify as deductible. This means that they must be ordinary and necessary, current, directly related to your rental activity, and reasonable in amount.

Here’s a look at what you should know about operating expenses, and how you can claim them on your taxes.

Deductions: Current Vs. Capital

Deductions fall into one of two different categories: current and capital.

Let’s look at both now.

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Landlord Tax Deductions: What Every Landlord Should Know

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Taxes aren’t exactly something that we look forward to, but for landlords and real estate investors, at least, there may be some reason to rejoice.

The tax code tends to favor real estate investors and having rental property can open the door to a tremendous number of tax deductions and credits that you could be eligible for, all of which can make a significant dent in your tax bill.

The key to maximizing your income with rental property is taking advantage of all of the tax benefits that are offered to you. Yet many landlords are unaware of just how many there are! Some deductions are more valuable than others, but overall, these write-offs can help you to increase your rental revenue considerably. Of course, how much you stand to benefit will vary widely depending on a range of factors including your filing status (married, single, joint-filing-separately?), tax status (business, investment?), tax bracket, the number of properties that you own, and how you structure your investments (LLC, sole proprietorship?).

If you’re a first-time landlord, or even an experienced investor, having a firm grasp of the tax code –as it applies to you will prove to be a tremendous advantage. It’ll help you to know how you should structure your investments, allow you to accurately calculate your taxes for prospective investments to see if a property’s worth investing in, and if you have an accountant, can help you to ensure that you both are on the same page. With this in mind, let’s take a look at the basics of the tax code, as it applies to landlords. Read on for an overview of the tenets of taxes, and to see which deductions that you may be able to claim.

Taxes Landlords Are Required to Pay

First, let’s take a look at the different types of taxes that you’re required to pay as a landlord:

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Normal Wear and Tear Versus Damage

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The end of a lease is an important event for landlords and tenants alike.

It can also be a time of conflicting expectations.

The landlord will usually expect their property to be returned to them in the exact condition that it was in when the tenants moved in –and if this doesn’t happen, are often happy to use the tenant’s security deposit to make it this way. Tenants, on the other hand, more often than not will expect their full security deposit back, even if there has been some damage to the rental.

In order to help manage expectations, and make the move-out process as simple and straightforward as possible, it’s important for both landlords and tenants to be on the same page. This includes having a good understanding of security deposits, and what they can and cannot be used for.

At the Time of Move-Out

At the time of move-out, the landlord or property manager is responsible for repairing any damages to the property, as well as assessing and documenting normal wear and tear. A good Property Manager will have a move-out routine that includes items like:

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The Eviction Proceedings: What Landlords Should Know About the Eviction Process

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You vetted the tenant –as carefully as possible.

You pulled credit reports, did a background check, verified their job, and called their previous landlords to make sure everything checked out.

At first, they may have been an ideal tenant; paying the rent on time, and rarely causing problems.

But somewhere along the way, something changed and a tenant that was once considered qualified –is no longer abiding by the terms of the lease.

In most cases, this violation comes in the form of late rent. Maybe they’re having trouble paying due to a job loss that results in a sudden loss of income, or income being cut in half due to a divorce. Other times, lease violations involve a tenant moving a new roommate in, without seeking permission first; or even adopting an undisclosed pet or two, and bringing them into your ‘no pets’ rental. Sometimes, there may be more serious issues involved; such as drug-related activity or criminal activity.

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The 3-Day Notice – What Landlords Should Know About the Eviction Process

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When it comes to rental property, there’s a lot that you can do upfront to help ensure that you’ll be in for a smooth and relatively stress-free journey.

Important preventative measures include having an airtight screening process, clear communication, and ensuring that you’re protected by a rental agreement.

But sometimes, despite the best efforts of even the most scrupulous landlord or property manager, there will be situations where people fall through the cracks. Even the most carefully vetted tenant can go wrong, unexpectedly failing to pay the rent on time or violating the lease.

While seeking a peaceful resolution is always the best course of action, some situations can’t be resolved. In these cases, a landlord may have no choice but to evict a tenant.

Evictions, for the most part, tend to be relatively straightforward, but this process also contains specific steps that landlords are required to follow, by law. For landlords, it’s extremely important to ensure that you operate within the requirements of the law, and always follow the correct process to the letter.

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Assistance Animals: Landlords Know Your Rights and Requirements

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While landlords are usually free to allow, or ban pets from their rentals, and are well within their rights to do so, there’s one very important exception to this rule that landlords should know about: assistance animals.

When it comes to the issue of service animals and emotional support animals (ESAs), landlords should note that these animals are exempt from no-pets policies. The reason is simple: these animals are not considered to be pets, but rather necessary aids for someone who has a disability. Because they don’t fall under the category of pets, landlords should make every effort to accommodate a reasonable request from a tenant who has a disability and allow these animals in their units. Landlords should also waive any pet rent or additional security deposits that they would normally require for pets.

When leasing their homes, some homeowners may feel concerned –that there’s room to exploit this system and attempt to smuggle pets in under the guise of service animals or emotional support animals; there’s no need for alarm. While a landlord is required to make reasonable accommodations for requests from people with disabilities, they also have rights to screen requests to ensure legitimacy.

If you’re a landlord –and wondering how you should treat requests for service animals or emotional support animals, read on. In this guide we’ll explore the difference between pets, service dogs, and emotional support animals; and see what your obligations –and rights are as a landlord.

Defining What Roles Animals Play

First, let's look at the three different categories of animals; and see the difference between pets, service animals, and emotional support animals.

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Home Warranties: What Every Landlord Should Know

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If you are a landlord, then you are all too familiar with the frustration that comes when you find out that the heater has gone out at your rental unit, or that there’s a leak –yet again.If you’re tired of the frustrations that come from dealing with breakdowns, and costly repairs eating into your profits, there’s a solution that you may want to consider: purchasing a home warranty for your rental.

Today, you can buy warranties for almost anything, including homes. Home warranties are particularly popular with landlords, who know all too well that if something can go wrong at a rental, it will. A good home warranty can help a landlord to save a significant amount of money if costly repairs are necessary. It can also help landlords to ensure compliance with state and federal laws.

While home warranties can be invaluable for landlords who are interested in protecting their investment, it’s important to note that not all warranties are created equal. Each warranty is unique in terms of the coverage that it offers, the exclusions, and terms and conditions.

If you’re interested in a home warranty for your rental, there are a few things that you should know before purchasing one. Here’s a brief rundown on what, exactly, a home warranty is, the benefits and disadvantages of getting one, and finally, what you can do to ensure that you choose the best option for your property.

What Is a Home Warranty?

The term ‘home warranty’ is enough to cause some confusion for those who are unfamiliar.

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Utilities: What Every Tenant Should Know

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While tenants should always ensure that they abide by the terms of the lease, unfortunately, this doesn’t always happen.

One common lease violation that occurs is when tenants attempt to shut off the utilities upon vacating a property. In addition to often being a violation of the lease agreement, turning off the utilities can also lead to potentially serious problems –water damage, freezing pipes, and a dead landscape –just to name a few. Not to mention that when the landlord has to turn the utilities back on, additional extra costs are often incurred. Sometimes, tenants will even vacate a property –while still owing unpaid utility bills, putting the landlord in the frustrating position of being unable to turn the utilities back on until the back payments are made.

For many tenants, though, shutting off the utilities usually isn’t done with bad intentions. Often, shutting them off may seem like a logical step that’s done when leaving the property. The fact is, though, that utilities should almost never be turned off –and tenants should never ask a utility company to do so without the express permission of the landlord.

To help you to abide by your rental agreement, and to ensure that you understand your responsibilities as a tenant, here’s a look at some dos and don’ts when it comes to utilities.

Transfer Utilities Don’t Terminate

First, it’s important to understand that the utility connection should never be terminated, canceled, or disconnected by a tenant. While it’s true that in most single-family rentals, tenants are usually responsible for paying their own utilities for the duration of their lease, it’s also true that they are responsible for damage that occurs to the property due to a disconnection of the services.

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Renting to People With a Criminal History: HUD Guidance

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Landlords who have a rule banning applicants who were convicted of a crime-may want to rethink that policy.

Recent guidelines issued by the US Department of Housing and Urban Development (HUD) on April 4, 2016 call for landlords to do away with blanket bans, that disqualify applicants based on prior convictions or arrests. Having a general ban, that precludes applicants from housing solely on the basis a criminal record, could be considered a violation the Fair Housing Act.

The Fair Housing Act; signed in 1968, prohibits landlords from discriminating on the basis of race, color, religion, sex, or national origin. While criminal history is not a protected class, under the new HUD guidelines, turning down applicants on the basis of a criminal record, without considering the nature of the crime or facts surrounding the conviction, can’t be legally justified –and could, indirectly, be a violation of the Act.

As many as 100 million U.S. adults, or nearly one-third of the population, have a criminal record of some sort. Additionally, the United States prison population, with 2.2 million adults, is the largest in the world. Since 2004, an average of over 650,000 people have been released every year from both federal and state prisons –and 95 percent of those currently incarcerated, will be released at some point in the future.

For individuals who are released, the ability to secure safe and affordable housing is a crucial part of their successful reentry into society. Yet many individuals who were formerly incarcerated are finding it extremely difficult to secure housing –because of their criminal history.

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Security Deposits in Colorado: What You Should Know

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In an ideal world, security deposits wouldn’t exist. Tenants would move into a rental –and look after it with the best of care. They would always pay the rent on time, and continually abide by the terms of the lease

Unfortunately, though, things don’t always work out this way. Things happen and mistakes are made. Sometimes, tenants end up vacating a property, leaving it in a state that requires renovations and repairs. Other times, they may fall behind on the rent –and leave owing thousands of dollars in bills and back rent.

Security deposits provide an ideal solution to the problem of tenant damage and owed rent. Think of them as an insurance policy for the home. The landlord collects the deposit at the time that the tenant moves in, and when they move out, the landlord applies the funds towards any outstanding rent, or damage that was caused by the tenant.

Security deposits, though, are not a simple cut and dry issue. Each state has different laws and requirements pertaining to the collection, use of, and sometimes even storage of security deposits, and landlords should take care to ensure that they’re operating in a way that’s in compliance with the both state and municipal law. Additionally, security deposits are often a hotly contended issue –tenants usually assume they will be getting all of their deposit back, while landlords will usually attempt to keep the deposit, and use it to fix up the rental. Property managers, unfortunately, often find themselves stuck in the middle –trying to ensure that the deposit is applied correctly, while at the same time helping to manage the expectations of both the landlord and the tenant. Little wonder that disputes about security deposits are one of the most common reasons that landlords and tenants end up in court.

Landlords and tenants would do well to know the law as it pertains to security deposits, and to have a clear understanding of their requirements when it comes to the use of the deposit. For landlords, this is vital for staying on the right side of the law, while for tenants, having a good knowledge of security deposits will help them to know their rights, and understand what they can do to ensure that they will get their deposit back.

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