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real estate taxes 101 what you need to
know before year end
plus two steps to complete asap
by nathan miller disclaimer this is
designed to provide
general information regarding the
subject matter covered it is not
intended to serve as legal
tax or other financial advice related to
individual situations
consult with your own attorney cpa and
or other advisor
regarding your specific situation filing
taxes can be a complex process
and when you add real estate investments
into the mix the whole undertaking may
suddenly seem overwhelming
there are many benefits to investing in
real estate tax deductions and credits
included
but first it's important to understand
how you can prepare to most efficiently
file your taxes
a close friend of mine is a property
manager he has an expat client
who still owns a rental property in the
united states
the client lives in spain where she is
considered a full-time resident
let's call her sarah sarah has a u.s tax
identification number
last year she reported her income under
a single member u.s licensed llc
considering she's the property manager
my friend had to do
significant research to find out which
form was correct for sarah to fill out
the conclusion form 1042-s
would be the best option to report
rental income subject to withholding for
a client who lives in a foreign country
my friend came to find out that for tax
purposes the irs disregards llcs that
are designated
single member this meant rental income
in these scenarios is taxed on the
individual's personal tax return
sarah should have filled out form w8 eci
w9 for u.s citizens which is appropriate
for u.s property owners with a foreign
address
the moral of the story is that investing
in real estate can easily complicate
your tax filing process
especially if you work as a property
manager or help others
manage their investment properties
issues may arise
of which you weren't previously aware so
here are some of the main considerations
you should keep in mind when planning
ahead for tax time
in order to reduce your taxes and
minimize your risk of
audit real estate taxes do this right
away when starting out as an investor
verify vendor and contractor information
touch base with
each vendor or contractor you've worked
with throughout the year
make sure you have the correct federal
tax id number and mailing address
if you are a property manager this
includes reaching out to each of your
property owners
issue and file 1099 miscellaneous forms
typically 1099 miss forms must be sent
to recipients by january 31st
and to the irs by january 31st if there
is a non-employee compensation amount in
box 7.
if there is no information in box 7 this
is rare the deadline is extended
slightly as a property manager or
landlord
you are required to issue 1099s to any
service provider who received
compensation
higher than 600 for work related to your
investment property
it might seem easy to not issue 1099s as
you hire handymen
or other laborers throughout the year
but penalties from the irs can be quite
steep
and are not worth the risk tax
deductions for real estate investors
deducting expenses related to managing a
rental property is one of the main
benefits of investing in real estate
make sure to keep excellent records and
do some research or hire a professional
to look into all of the deductions and
credits you may be eligible for
a few examples of real estate investment
related tax deductions include
property repairs and maintenance
property tax insurance
travel costs mortgage interest
depreciation
operating expenses business related
deductions often catch the eye of the
irs
so be sure you can provide proper
receipts and can justify the business
necessity of each claim
in the off chance that you are audited
how to fund your retirement accounts as
a real estate investor
most of the time the deadline to fund
retirement accounts for the previous
year is april 15th
but some specific accounts have a
december 31st deadline
in order to be deducted it is crucial to
plan ahead and know your tax deadline to
ensure your accounts are in place
by the correct deadline if your
investment grows substantially over the
course of the year
you may want to consider a roth ira to
keep your profits tax-free
if your investment has modest growth or
loses money over the course of a year
you may consider converting your roth
ira to a traditional ira
without facing any taxes or penalties
understanding your options and what will
work best for your portfolio
can have some significant tax advantages
how to save money on taxes by spending
money on your property
no one likes the idea of handing over
money sooner than necessary
but in some cases it makes the most
sense
for example if your investment property
is generating substantial profit
it might be worthwhile to prepay
recurring bills that aren't likely to
change
think insurance disposal landscaping to
bring your income level down for the
year
on the other hand if your investment is
going to be negative
you may be able to write off your losses
and expenses to show no income
another option to consider before tax
season to reduce your taxable income
is to purchase items or make other
pending repairs
replacing worn out appliances repainting
mending broken fences
and other similar activities can turn
out to be a wise investment
how to prevent a tax hit when selling
real estate
selling an investment property is not a
decision to be taken lightly
the tax pros and cons should be
carefully considered before pulling the
trigger
selling your property at a gain in a
year during which you
have many tax breaks and therefore less
taxable income
can be a strategic move every situation
is unique and depends on your local
market
be sure to consult with a tax advisor or
financial planner
before you make the official decision to
sell
how to protect your data during tax
season each and every day
data theft puts our personal and
financial information at risk
besides the holiday shopping season tax
season is one of the most popular
periods of the year for cyber security
issues of
course we want to keep our personal
information safe but you are at an
increased risk if you act as a property
manager
and are also responsible for the
information of your clients
and tenants there are steps you can take
to prevent
theft and keep your data safe during tax
season
use strong unique passwords for each of
your online accounts
take advantage of two-factor
authentication whenever possible
on financial email and social media
accounts avoid conducting business or
personal transactions
on unsecured wi-fi in public locations
use caution when opening emails or
answering phone calls
the irs will not initiate contact with
taxpayers by email or
phone to request personal or financial
information
check credit monitoring services for any
activity you don't recognize
filing taxes as a real estate investor
will probably always be a bit
complicated but
you can make the process easier on
yourself by keeping detailed records and
documentation
as well as planning ahead as much as
possible if you have any questions or
are unclear about
any part of the tax filing process you
should
always consult a tax professional cpa
or attorney familiar with rental
properties in your state
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