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Own a Rental Property? Why Filing Your Taxes This Year Rules

April 1, 2019

Leonardo Patrizi/iStock

My husband and I recently purchased our first rental property. Over the past few months, we’ve repaired and renovated the 1930s-era home, and are starting to look for tenants.

And it turns out our timing couldn’t be better: The Tax Cuts and Jobs Act of 2017 made several changes for rental property owners that portend a more profitable enterprise than it used to be.

“For rental property owners, [the act] will generally benefit you,” says Thomas Castelli, a New York City–based certified public accountant and tax strategist with the Real Estate CPA, a firm focusing on real estate tax.

How exactly the federal tax changes apply to individual property owners can vary, so Castelli recommends seeking out a tax professional well-versed in real estate to help sort things out. But here’s a general overview of some of the new tax rules that will most likely affect rental real estate owners—including me.

Rent house (before)
The rental house we purchased before the remodel

Erica Sweeney

Rent house (after)
The newly renovated rental house, with a new roof, fresh paint, and an opened-up front porch

Erica Sweeney

Landlords can deduct a big ‘bonus’ the first year

Blame it on wear and tear, or just the passage of time, but in the eyes of the IRS, rental property depreciates over time. For landlords, that’s a tax break—typically one that’s spread out over several years.

The good news? During the first year of owning a rental property, landlords can take a “bonus” depreciation deduction. In the past, that deduction maxed out at 50% of the property’s value. But under the new tax act, that deduction doubled, to a max of 100%, which could amount to the entire sum you paid for the place. In other words, it’s a huge chunk of change!

This bonus deduction would be netted against revenue, which, in many cases, would make rental income show a loss, Castelli says.

“So you won’t be paying tax on your rental income,” he says. “I’d say that’s probably the biggest and most important change or most beneficial change to rental real estate investors.”

Keep in mind, though, that your property has to qualify. One, it must be placed in service (meaning available for rent) after Sep. 27, 2017, and before Jan. 1, 2023. Two, all or part of the property must have a “class life” of less than 20 years. Since most properties typically have a class life of 27.5 years, it would need to be reclassified as a five-, seven-, and 15-year property in order to take advantage of the bonus depreciation (a CPA can help with this).

Here’s how it all plays out in dollars and cents: “Let’s say you have a property worth $100,000, and you can get 20% of that reclassified as a five-, seven- and 15-year property,” Castelli says. “That’s a $20,000 deduction.”

Up to 20% of rental revenue can be tax-free

While rental income is taxed, the tax act could offer landlords a nice tax shelter of sorts where up to 20% of that rental income is tax-free.

“What that means is for every $100 of taxable rental income, it’s possible that you only pay tax on $80 worth of it,” says Amanda Han, a certified public accountant and assistant managing director at Keystone CPA, in Fullerton, CA.

How it works: Section 199A of the IRS code provides some taxpayers with a deduction for qualified business income. In the past, there was much confusion about whether this applied to landlords, but the IRS issued a clarification, providing a safe harbor for a “rental real estate enterprise” to be treated as a business.

“That is helpful for a lot of landlords, and is available as long as it’s rental income,” Han says.

Landlords can deduct more home improvements immediately

In the past, landlords could deduct repairs to a rental property immediately, but home improvements were depreciated over time. This has often caused confusion for landlords.

“What is a repair versus what’s an improvement?” Han says. “There were always questions about that, because repairs we deduct immediately; improvements we have to depreciate.”

Yet the tax act simplified those rules. Under section 179, the IRS increased the immediate deduction threshold for home improvements to $2,500 per item. In other words, money spent on improvements under $2,500 can be deducted immediately, rather than going through the complicated depreciation process.

One negative? Some landlord losses are now capped

One new aspect that could sting rental owners relates to losses on the property. A loss occurs when a property’s expenses total more than rental income. Previously, owners of rental real estate could take unlimited losses from their rental real estate. The tax act now limits those losses to $250,000 for a single person and $500,000 for married couples, Castelli says.

The upside? Since these limits are quite high, Castelli says this change will not affect most individual rental property owners.

How to make the tax act work for you

The tax act has been better than expected for rental property owners, Han says. “It’s a great opportunity for real estate investors.”

Good record keeping is essential for rental owners, and Han recommends property owners keep sales closing disclosures, purchase closing disclosures, refinancing documents, and receipts for anything to do with the home for at least three years.

The post Own a Rental Property? Why Filing Your Taxes This Year Rules appeared first on Real Estate News & Insights |®.

How to Hire a Property Manager: Tips to Find the Right Pro

August 3, 2018

How to Hire a Property Manager


If you’re wondering how to hire a property manager, you have no doubt heard how this professional can be a boon to landlords who want to outsource the nitty-gritty details of running a rental property. But finding a good property manager can be challenging, since the quality level and services they provide really do run the gamut.

The key to hiring the right property manager for you is to draft a detailed job description and ask the right questions during the interview process. Here’s how to do that, so you can find the perfect pro who will save you headaches rather than create new ones.

What does a property manager do?

First things first: Do you really need or want a property manager’s services?

In an ideal world, “if you choose the right manager, it should make your life more peaceful and more profitable,” says Kimberly Smith, author of “Making Money With Rental Properties,” which is part of the Idiot’s Guides series.

Some property managers will have connections that will help fill your vacant properties with good tenants who pay on time and never cause a ruckus. Furthermore, a skilled property manager can do everything from marketing to rental collection to handling day-to-day maintenance issues.

“The right property manager will be able to deliver more efficient management and, in some cases, less expensive services,” Smith notes. In other words, paying a good property manager can actually save you money.

“For example, if they are managing 10 properties in one area, they can contract to have all HVAC systems serviced seasonally and get a volume discount,” she explains.

How to hire a property manager: Ask for recommendations and references

Most employers check employee references before extending an offer, and hiring a property manager should entail the same steps.

When Brady Hanna, president of Mill Creek Home Buyers in Kansas City, KS, first got into real estate investment, he was busy, exhausted, and overwhelmed. He went with the first property management company he found, and it was a huge mistake. Hanna learned the hard way what happens when you don’t ask around.

“They ended up filling my vacant unit, but as I scaled up and added several more properties, their communication was terrible,” Hanna says. “It was like pulling teeth to get information out of them. Sometimes I couldn’t reach a live person when I called, and several months in a row my rental income was paid significantly late and there were always excuses from the management company as to why.”

Hanna fired the company and then asked other local real estate investors for recommendations. That’s how he found the company he uses and trusts today.

“I would estimate that only roughly 20% of all property managers are great, so you want to find that out ahead of time instead of learning the hard way like I did,” Hanna says.

How much do property managers make?

Property managers are paid in a variety of ways, so you need to come to an agreement with your manager based on your individual needs.

Hanna provides this guide for reference: “When filling vacant units, they will typically charge half to one full month’s rent for marketing and filling your unit. Then on the ongoing management, the fee is usually anywhere between 7% to 10% of the rent collected. Some property managers will also charge an up-charge on maintenance items as well.”

Check the property manager’s qualifications

“A property manager that is acting on your behalf to lease and manage your property must assume fiduciary responsibility and needs to be a licensed real estate agent,” Smith says.

Other requirements vary from state to state, but you can call the nonprofit National Property Management Association to find out what the rules are for your area. For example, some states require HOA management licenses or property management licenses.

Lay out clear expectations

Generally, a property manager’s job is to manage the rental process from start to finish. That means “if the property is vacant, they will hire contractors to get it rent-ready at the owner’s expense, take pictures of the property, market it for rent, screen applicants, handle the showings of the property, fill it with a tenant, collect rent, and handle all maintenance requests as well,” Hanna says.

If tenants aren’t paying, it’s typically a property manager’s job to file for evictions and work with attorneys to collect back rent.

But there is no standard property management job description, which means it’s up to you to outline exactly what you are looking for from the get-go, Smith says. Do you want the start-to-finish management? Or are you looking to split the duties? This needs to be spelled out from Day 1.

Questions to ask a property manager

Not sure how to ascertain whether or not a manager can do the job you need? Hanna suggests asking the following questions:

  • What is your process for screening applicants?
  • How long does it typically take you to fill vacant units?
  • How many units are you currently managing?
  • How big is your staff?
  • What is your process for maintenance requests?
  • What is your process when a tenant doesn’t pay rent on time?
  • Have you filed evictions before? If so, how do you do that?


A good property manager should readily have answers to these questions—and if not, that’s a red flag. Remember, the whole point is for the pro to make your landlord duties easier, and part of that is simply establishing clear communication and a comfortable rapport.

Patricia-Anne Tom contributed to this report .

The post How to Hire a Property Manager: Tips to Find the Right Pro appeared first on Real Estate News & Insights |®.