RSSBuying investment property requires good tax records
This home, at 2012 N. Seventh St., is in a central location and has four bedrooms and two baths in 1,880 square feet. Winona Schwartz with Coldwell Banker Home Owners Realty is listing the property for $139,900.
This home at 1736 N. 26th St. is a great investment property; it already has tenants living in it. Elizabeth Birmingham with EB Realty is listing the three bedroom, one bath-home for $130,000.
This home, at 654 Douglas Place, has good potential as an investment property. It’s in a central location, north of Patterson near 31 Road, and has four bedrooms and two baths in 1,344 square feet. Grace Varley with RE/MAX 4000 is listing the property for $129,900.
This property at 2100 Ouray has four bedrooms and three baths in 1,532 square feet. The home was built in 1977 and remodeled in 2010. Harry Hotimsky with 1st Choice Real Estate is listing the home for $185,000.
This home at 1344 Kennedy is two blocks from the Colorado Mesa University campus and has three bedrooms and one bath. Britta Essman with Bray and Company is listing the property for $129,900.
This home at 1360 Kennedy is two blocks from the Colorado Mesa University campus and has three bedrooms and one bath. It’s listed by Vona Murphy with Coldwell Banker Home Owners Realty for $72,500 and three offers already have come in on the property.
It’s an ideal time to purchase rental property — low prices and low interest rates, combined with a healthy vacancy rate that ranges between five and seven percent, mean that those who have the cash for the down payment may be able to purchase investment property and see a positive monthly cash flow.
The Internal Revenue Service has different standards for owning residential investment property than for personal residential property. Although capital gains of up to $250,000 for a single filer and $500,000 for married couples are exempt on primary residences, investment property is subject to capital gains taxes. Those who purchase investment property should be aware of the tax implications and keep accurate records, beginning with the day the property is purchased.
At closing, all the costs associated with purchasing the property are added to the cost of the property to establish a base price of the investment. The home is subject to depreciation for the next 27 1/2 years.
“You can’t depreciate the cost of the land,” said Dorothy Stevenson with Tax Time. “You have to separate the building from the land.”
Stevenson said the best way to determine the cost of the land is to use the Mesa County property assessment, which breaks down the cost of the land and the improvements. Certain capital improvements, like a new roof or a new furnace, can also be depreciated.
Property owners can have multiple depreciations in place for various improvements, and various improvements are depreciated over different lengths of time.
Rent collected throughout the year is taxed at regular income rates, however, many costs associated with owning rental property are deductible, and property owners must keep accurate records. Interest and taxes are both tax-deductible, as are utilities, repairs and maintenance costs.
“One of the tough things is keeping track of everything,” Stevenson said. “Yard work, fertilizer, mileage to and from the property is all tax-deductible.”
If a property owner places an ad or uses a property management company to find tenants, those costs are also deductible, as are ongoing property management fees.
In today’s market, some home owners who would normally sell their primary residence have elected to rent it out for a few years while waiting for the market to improve for sellers.
Property owners must depreciate the home as an investment property for the duration the home is used as a rental, unless they place it in service as a rental and sell it in the same year.
They can also deduct the expenses associated with the home from their income for the year. If the amount collected for rent is less than the monthly mortgage, the difference would be a rental property loss and would reduce other income under most conditions. Property owners must fill out a Schedule E when they file their taxes.
It is possible to defer the capital gains tax that is owed when an investment property is sold through a like-kind exchange, as defined by Internal Revenue Code Section 1031.
There are strict guidelines and the property must fit all the guidelines in order to quality. The tax is deferred, but not forgotten.
With all of the rules, forms and restrictions, it’s always a good idea to seek the advice of both a knowledgeable real estate professional and a tax professional when considering investment property.
various improvements, and various improvements are depreciated over different lengths of time.
Rent collected throughout the year is taxed at regular income rates, however, many costs associated with owning rental property are deductible, and property owners must keep accurate records. Interest and taxes are both tax-deductible, as are utilities, repairs and maintenance costs.
“One of the tough things is keeping track of everything,” Stevenson said. “Yard work, fertilizer, mileage to and from the property is all tax-deductible.”
If a property owner places an ad or uses a property management company to find tenants, those costs are also deductible, as are ongoing property management fees.
In today’s market, some home owners who would normally sell their primary residence have elected to rent it out for a few years while waiting for the market to improve for sellers.
Property owners must depreciate the home as an investment property for the duration the home is used as a rental, unless they place it in service as a rental and sell it in the same year.
They can also deduct the expenses associated with the home from their income for the year. If the amount collected for rent is less than the monthly mortgage, the different would be a rental property loss and would reduce other income under most conditions. Property owners must fill out a Schedule E when they file their taxes.
It is possible to defer the capital gains tax that is owed when an investment property is sold through a like-kind exchange, as defined by Internal Revenue Code Section 1031.
There are strict guidelines and the property must fit all the guidelines in order to quality. The tax is deferred, but not forgotten.
With all of the rules, forms and restrictions, it’s always a good idea to seek the advice of both a knowledgeable real estate professional and a tax professional when considering investment property.
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