Investors know there there are many tax benefits for owning real estate.
Taking advantage of all the benefits, however, requires effort, and likely, professional help. Tax law is filled with complicated nuances. When these laws are not followed correctly, owners cannot tax full advantage of the tax benefits. This article will cover the things you need to do to prepare for your taxes when working with your tax professional.
Everyone knows to track expenses for taxes. But just as important is tracking rental income. Rental income is not just the base rent you receive; other incomes could also be classified as rental income, including:
- Advance rent
- Security deposits used as final payment of rent
- Payment in the event of a lease cancellation
- Property or services rendered in lieu of rent
- Income received from leases with the option to buy
Check with your tax professional for other sources of income that must be reported for taxes.
Tax Deductible Expenses for Tax Benefits
This is probably the area where most real estate owners focus their time tracking in preparation for tax time. The biggest expenses that can be deducted include:
- Mortgage interest
- Property taxes
As with the income side, talk with your tax professional to make sure you have adequately covered all your expenses as well.
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Special Deductions and Tax Credits
Are you eligible for any special deductions or tax credits? Here is just a small list of credits to consider:
- New Markets Tax Credit (NMTC)
- Rehabilitation Tax Credit is otherwise known as the Historic Tax Credit (HTC)
- Low-Income Housing Tax Credit (LIHTC)
- 179D – Energy Efficient Commerical Buildings Deduction
These are just a few of the credits available. Please note some of these credits have had recent extensions due to the pandemic. Work with your tax professional to ensure you have the latest information to take advantage of all tax benefits fully.
Other Tax Provisions and Rules as Tax Benefits
Some other opportunities to keep in mind at tax time are:
- Anything sold as part of a 1031 Exchange
- Deferral of capital gains through Opportunity Zones
- Qualified Income Tax Deductions (QBI)
Again, seek your tax professional’s advice that knows your specific situation. They can best advise you on how to proceed. Giving them early and easy access to your information will help them give you the best strategic advice.
Preparation for Taxes: Year-Round Activity
Finally, tax prep should begin at the beginning of the year. However, many tax professionals are only consulted at the end of the year, or even worse, when taxes are due. STRATAFOLIO is a web-based software program for real estate owners that provides a global view of an entire portfolio.
STRATAFOLIO not only tracks income and expenses for every business within a real estate owner’s portfolio but is also a centralized hub for tracking investors and lease administration activities. We encourage owners to give their tax professionals access to their organization. This access provides accountants quick access to information allowing for more strategic collaboration. But it also reduces the administrative burden of exchanging and sharing information between owners and accountants.
Learn more about how STRATAFOLIO could help you streamline your tax time activities and propel your real estate business forward!
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