Q4 Tax Savings For Rental Property Owners/Landlords

As we enter the last quarter of tax year 2019, it’s a perfect time to look at last minute actions you may take to fully realize the benefits of the new tax law as it affects rental property owners.Here are two items worth your time to review … and then schedule a meeting with your tax advisor to determine how either or both may apply to your unique situation.

  1. Section 179 Deductions, and
  2. 100% Bonus Depreciation

Note: First off, let me be clear. I am not a professional when it comes to interpreting tax law.That said, you are urged to meet with your tax advisor and seek professional guidance for the specifics of the new tax law (TCJA) as it may apply to your unique circumstances. Here, I only present my understanding of the provisions of the revised Act and how I think it presents unique advantages to residential rental investors. For more information, click here.

Section 179 Deductions

This section of the tax code has never applied to rental property owners. Now, under the TCJA, residential rental owners are permitted to deduct in one year the cost of depreciable personal property used in the rental business. Personal property includes furniture and appliances and perhaps, carpeting and flooring plus other equipment used in the living quarters of a lodging venue … such as an apartment house, dormitory, or other facility where sleeping accommodations are rented out.

For tax year 2019 the maximum annual deduction is $1 million, essentially double the previous cap of $510,000. That’s in contrast to amortizing eligible expenses over several years … as was the case prior to enactment of the new tax code.

Bonus Depreciation

Bonus depreciation isnow available on both new and used property. Here’s a general rundown.

Bonus depreciation percentage boosted from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. That means businesses may write-off the full cost of most depreciable property in the first year they use it in their business. Generally, machinery, equipment, computers, appliances and furniture will qualify.

For real estate investors, this means that many of the small home improvement projects completed each time a new tenant moves into a property can be written off on their yearly taxes … and enjoy reductions in their tax bite. Additionally, those tax savings may be reinvested in property enhancements to justify rent increases.

As we enter Q4 of 2019, the above points to “all good” news for Virginia residential rental investors!

That said, to benefit from these tax breaks in 2019, you must incur the expenses prior to the end of this year. So, if you think you may qualify, see your tax advisor asap and make plans to move forward no later than December 31, 2019.

Note: Click here for the most recent Safe Harbor clarification by the IRS …with some limits and exceptions, landlords may deduct 20% of net rental income. Net result … only 80% of rental income will be taxed

 

 


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