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
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