Wednesday, December 14, 2011

I was recently reading an article written by a tax accountant and he indicated that the IRS has been advised to increase its audits of returns reporting rental real estate income and losses.  It appears that 53% of individual tax payers with rental real estate activity misreported income. 

While you absolutely don't want to fall victim to an audit, you do want to minimize your tax liability.

Below are some helpful tips to keep in mind as the end of the year approaches.  Whatever you do make sure you maintain adequate supporting DOCUMENTATION for all of your deductions.  Any information contained in this document should not be construed as tax advice.  For more information on allowable deductions consult with your tax accountant or the read IRS Publication 527 Residential Rental Property.

1. Time Rental Income
Income timing is a time-honored year end plan. In future, tax rates are expected to increase from current historical low rates. If you expect rates to go up it might be better to accelerate income by receiving by January rental income in December. Income timing is not easy and you should consider its impact on various deductions.

2. Accelerate Rental Expenses
There are many different types of expenses that  can be accelerated to reduce rental income for the year. You can purchase goods and services needed for the rental property business, and pay the bills early. Qualifying expenses include advertisements for vacancies, printing, association memberships, business insurance, seminar fees, education courses, cell services, subscriptions, insurance, and utilities. You can also stock up on any office supplies, like printer paper and ink cartridges.
Interest is generally one of the largest deductible expenses – so you can prepay the January mortgage payment to increase your interest expense for the current year.  If you have employees that you pay for your rental business, prepay the withheld Social Security, Medicare, and unemployment taxes.

3. Employees Health Insurance Credit
You can deduct the cost of health insurance for any employees of your rental business. Take advantage of the health insurance credit, which provides a credit worth up to 35% of premium costs in 2011.

4. Claim Home Office, Workshop, Garage Deduction
If requirements are met, this is one of the best deductions as it enables conversion of non-deductible personal expense into a tax-deductible rental business expense.
Besides deducting expenses for use of space at home for office work, you can deduct space used as work- shop for rental business. If you use your garage to store your tractor to cut grass or to hold furnishings, you can deduct expense for its use.

5. Claim Your Automobile Expenses
Automobile expenses paid exclusively for your rental business can be fully deductible. You can select either the actual expenses method instead of standard mileage if the automobile incurred lot of expenses in 2011.

6. Claim Your Travel and Entertainment Expenses
Deduct travel and entertainment expenses incurred when traveling for your rental business. If you travel overnight for your rental business, deduct your airfare, hotel bills, meals and other expenses.

7. Expense Repair Costs
Remember that repairs are expensed in the year that they occur while improvements are depreciated. Deduct the full cost of repairs that are necessary to keep your property in good working condition like fixing broken windows, gutters, leaks, locks, painting rooms, plastering, etc.

For more tips visit T-Rex Global, an on-line property management resource tool. 

Looking to rent our your property?  Then contact me today for a free market assessment.  The rental market in San Francisco is extremely hot, rents have increased at least 10% over the last two years and vacancy rates are at an all time low.  I can help you maximize your residential rental property.

J.Wavro Associates is a group of licensed real estate professionals specializing in rental property leasing and executive relocation in the San Francisco Bay Area. They specialize in helping to lease rental properties, and have an extensive corporate and private network that allows them to consistently attract suitable tenants. Their Bay Area executive relocation specialists offer rental assistance to people looking to move to the Bay Area or locals looking for a new home. The real estate professionals of J.Wavro Associates can provide a wealth of knowledge on a particular neighborhood or neighborhoods of interest to clients. They will also identify specific properties that fit the client's exact needs and budget. As part of their executive relocation service, J.Wavro Associates will arrange appointments, provide property tours and assist in lease negotiations.

Deborah Brown | 415.254.7188 |

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