Don’t forget to find deductions on indirect expenses
Property owners often forget to check whether they can take advantage of deductions not only for direct expenses paid out during the year, but also for things such as depreciation as well. The appliances at your rental house, inside and out, may be depreciated on your tax return. In fact, if your rental has a built-in grill, a patio bar with a mini-fridge, or other outdoor appliances, and you haven’t checked to see if you could have been taking a deduction for depreciation on your tax return, you could be missing out on valuable deductions that can add up to big savings come tax time.
You may not have even thought about depreciating your rental property’s exterior appliances. But doing so may add up to big tax savings over time. For example, if you have installed a built-in gas grill or mini-fridge on the patio, these items would be classified as improvements. According to the IRS, that means that you should identify which category the appliance fits into, and then determine the amount of depreciation you may be able to deduct each year of that item’s useful life.
More specifically, let’s say that you replace an outdoor mini-fridge for $400, then spend another $100 on delivery and installation. You may be able to use the total amount you spent on the mini-fridge ($500) for depreciation purposes. The IRS states that a fridge can be depreciated over five years, which means that you will then be able to take a portion of that total value as a tax deduction for each of the next five years. You may need to take a large portion of the depreciation in the first year, and then smaller percentages in each of the following years. This can make calculating depreciation yourself a bit tricky, especially since tax laws change all the time. You can refer to IRS Publication 527 for more information. But your best option would be to hire a qualified tax professional to help you maximize all the dedications available to you as a rental property owner*.
Buying or replacing exterior appliances can be a large expense. That is why it is so important to know there may be ways to use that expense to your advantage on your tax return. By doing so, you may be able to maximize your profits year after year.
Real Property Management can help you protect your investment, provide professional service, minimize your costs, and maximize your income—without interrupting your daily life. For more information, please contact your nearest Real Property Management office.
* Information contained herein is general in nature and is not intended as legal or tax advice. Please contact your legal or tax counsel for advice on the tax implications of any proposed transaction or strategy.