Blog Category

Tax Deductions for Rental Homes

By: Although being a landlord certainly has its cons, tops among its pros are the tax deductions rental homeowners enjoy.

From finding tenants to fixing faucets, renting out a home can be a lot of work. If that doesn’t dissuade you, you’ll appreciate collecting the rent checks and taking advantage of tax deductions. In fact, you can use many rental property expenses to offset your rental income. IRS Publication 527 has all the details.
Writing off Rental Home Expenses Many rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping. In general, you can claim the deductions for the year in which you pay for these common rental property expenses:
  • Advertising
  • Cleaning and maintenance
  • Commissions paid to rental agents
  • Home owner association/condo dues
  • Insurance premiums
  • Legal fees
  • Mortgage interest
  • Taxes
  • Utilities
Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Moreover, the location of the rental home doesn’t matter. It could even be outside the United States. Limits on Travel Expenses You can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2014, it’s 56 cents per mile. Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities. Repairs vs. Improvements Another area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.) Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture. Deciphering Depreciation Depreciation refers to the value of property that’s lost over time due to wear, tear, and obsolescence. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years. You can begin depreciating the value of the entire rental property as soon as the rental home is ready for tenants and you hold it out for rent, even if you don’t yet have any tenants. In general, you depreciate the value of the home itself (but not the portion of the cost attributable to land) over 27.5 years. You’ll have to stop depreciating once you recover your cost or you stop renting out the home, whichever comes first. Depreciation is a valuable tax break, but the calculations can be tricky and the exceptions many. Read IRS Publication 946, “How to Depreciate Property,” for additional information, and use Form 4562 come tax time. You may need to consult a tax adviser. Profits and Losses on Rental Homes The rent you collect from your tenant every month counts as income. You offset that income, and lower your tax bill, by deducting your rental home expenses including depreciation. If, for example, you received $9,600 rent during the year and had expenses of $4,200, then your taxable rental income would be $5,400 ($9,600 in rent minus $4,200 in expenses). You can even write off a net loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Active participation in a rental is as simple as placing ads, setting rents, or screening prospective tenants. If your modified adjusted gross income (same as adjusted gross income for most persons) is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000. You may be able to carry forward excess losses to future years. Let’s say that for the year rental receipts are $12,000 and expenses total $15,000, resulting in a $3,000 loss. If your modified adjusted gross income is below $100,000, you can deduct the full $3,000 loss. If you’re in a 25% tax bracket, a $3,000 loss reduces your tax bill by $750, plus any applicable state income taxes. Tax Rules for Vacation Homes If you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions. The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days. This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.
Visit Houselogic.com for more articles like this.  Reprinted from Houselogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®

New Listing in New London, NH

This traditional half-cape has been well-cared for and its size and layout would meet the needs of a variety of buyers, including those who would prefer one-floor living, or buyers who need extra room for a larger family or visiting friends and relatives.  It also offers some often sought after "extra" rooms:  a first floor den for relaxing, plus another office/den space on the second floor.  The generously sized dining and living rooms are open to each other and share enjoyment of the stone-faced fireplace.  This would be a great house for entertaining!  With the full basement and space over the garage, there is also ample space for storage.  Its convenient location in an established neighborhood adds to its appeal!  Offered at $345,000.  For more information and photos, visit www.NewLondonNHCape.com

CatonWinterMarilyn Kidder, Listing Broker, 603-526-4116

Known for service, trusted for results – Coldwell Banker Milestone Real Estate.

Looking for a Home with Mountain Views?

This light-filled, airy, contemporary cape offers lovely sunsets and mountain views, along with privacy and the convenience of being just 5 minutes from town.  Three bedrooms, with the master bedroom on the first floor, and 3.5 baths.  Work at home in your office/den.  The great room, dining room and kitchen are a great place to relax and welcome guests or family.  A lower level family room offers more play space and storage.  Offered at $540,000.  Visit www.NHMountainViews.com for more photos and details.

LawtonWinterMarilyn Kidder, Listing Broker, 603-526-4116

Teamwork from the Team that works – Coldwell Banker Milestone Real Estate.

Are Mortgage Points Tax Deductible?

When you took out a mortgage to buy your home did you pay points?  You may be able to deduct that prepaid interest on your federal tax return--but only if you meet a long list of rules.

The points you paid when you signed a mortgage to buy your home may help cut your federal tax bill. With points, sometimes called loan origination points or discount points, you make an upfront payment to get a particular rate from the lender. Since mortgage interest is deductible, your points may be, too.
If you itemize your deductions on Schedule A of IRS Form 1040, you may be able to deduct all your points in the year you pay them. Some high-income taxpayers have their total itemized deductions limited, including points. You can read more about that in the instructions for Schedule A. Lucky for you, the IRS doesn’t care whether you or the homesellers paid the points. Either way, those points are your deduction, not the sellers’. Tip: Tax law treats home purchase mortgage points differently from refinance mortgage points. Refinance loan points get deducted over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct $100 per year on your Schedule A. The Fine Print for Deducting Points The IRS rules for deducting purchase mortgage points are straightforward, but lengthy. You must meet each of these seven tests to deduct the points in the year you pay them. 1.  Your mortgage must be used to buy or build your primary residence, and the loan must be secured by that residence. Your primary home is the one you live in most of the time. As long as it has cooking equipment, a toilet, and you can sleep in it, your main residence can be a house, a trailer, or a boat. Points paid on a second home have to be deducted over the life of your loan. 2.  Paying points must be a customary business practice in your area. And the amount can’t exceed the percentage normally charged. If most people in your area pay one or two points, you can’t pay 10 points and then deduct them. 3.  Your points have to be legitimate. You can’t have your lender label other things on your settlement statement, like appraisal fees, inspection fees, title fees, attorney fees, service fees, or property taxes as “points” and deduct them. 4.  You have to use the cash method of accounting. That’s when you report your income to the IRS as it comes in and report your expenses when you pay them. Almost everybody uses this method for tax accounting. 5.  You must pay the points directly. That is, you can’t have borrowed the funds from your lender to pay them. Any points paid by the seller are treated as being paid directly by you. In addition, monies you pay, such as a downpayment or earnest money deposit, are considered monies out of your pocket that cover the points so long as they’re equal to or more than points.  Say you put $10,000 down and pay $1,000 in points. The downpayment exceeds the points, so your points are covered and therefore you can deduct them if you itemize. If you were to put nothing down but you paid one point, that $1,000 wouldn’t be deductible. 6.  Your points have to be calculated as a percentage of your mortgage. One point is 1% of your mortgage amount, so one point on a $100,000 mortgage is $1,000. 7.  The points have to show up on your settlement disclosure statement as “points.” They might be listed as loan origination points or discount points. Tip: You can also fully deduct points you pay (for the year paid) on a loan to improve your main home if you meet tests one through five above. Where to Deduct Points Figured out that your points are deductible? Here’s how you deduct them: Your lender will send you a Form 1098. Look in Box 2 to find the points paid for your loan. If you don’t get a Form 1098, look on the settlement disclosure you received at closing. The points will show up on that form in the sections detailing your costs or the sellers’ costs, depending on who paid the points. Report your points on Schedule A of IRS Form 1040. There are two things related to points that you can’t deduct: 1.  Interest buy-downs your builder paid Some builders put money in an escrow account (as a buyer incentive) that the lender taps each month to supplement your mortgage payment. Those aren’t considered points even though the money is used for an interest payment and it’s prepaid. You can’t deduct the money the builder put into that escrow account. 2.  Interest payments from government programs You can’t deduct points paid by a federal, state, or local program, such as the federal Hardest Hit Fund, to help you if you’re experiencing financial trouble. Source:  Visit Houselogic.com for more articles like this.  Reprinted from Houselogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.  

Are You a New Hampshire Poet?

PoetryThe Lake Sunapee Region Center for the Arts is currently seeking original poetry submissions centering on the theme "Poetry Born from Music".  For submission rules go to http://www.centerfortheartsnh.org/writing-contest-.html.  Please submit by Monday, February 16.  Judging by NH Poet Laureate, Alice B. Fogel. Two winning poets will be notified by March 31 and invited to read their poems at The Lake Sunapee Protective Association's Knowlton House at Sunapee Harbor on Friday, April 10 from 5-7pm.

Real estate markets are local, and we have the real scoop on ours. Coldwell Banker Milestone Real Estate

Looking for a Night of Music?

Sunapee Coffee HouseCome on down to the Sunapee Community Coffeehouse Friday, February 6th at 7pm to see folk singer-songwriter Cosy Sheridan.  The coffeehouse is located downstairs at the Sunapee Methodist Church, 9 Lower Main Street, Sunapee, NH.  Coffee, tea and baked goods will be available.  A hat will be passed around for donations to the musician.

Cosy Sheridan's satirical viewpoints on everyday life have earned her a place in the hearts of fans across the country. Her concerts are wide-ranging explorations of modern mythology (meet Hades the Biker), love songs for adults, contemporary philosophy for the thoughtfully-minded and her signature parody on aging and women. A former NH native, she first caught the attention of national folk audiences in 1992 when she won the songwriting contests at both the Kerrville Folk Festival and the Telluride Bluegrass Festival. West Side Folk called her "one of the era's finest and most thoughtful singer-songwriters".  

If you would like to perform, volunteer or inquire about performances, call 763-2668 or www.sunapeecoffeehouse.org

Real estate markets are local, and we have the real scoop on ours. Coldwell Banker Milestone Real Estate

A Rare and Exceptional Land Offering

The perfect combination of features with outstanding Mt. Kearsarge views across stonewall defined fields with beautiful maple trees as accents.  Southern exposure for a sunny and warm building site.  145 acres provides excellent privacy and total peace and quiet with no highway noise.  Only a short drive to Pleasant Lake or New London for shopping.  Covenants will preclude further subdivision.  Located in the quaint town of Wilmot, NH.

001smallMarilyn Kidder, Listing Broker, 603-526-4116

Known for service, trusted for results – Coldwell Banker Milestone Real Estate.

Come Up to the Great Skiing at Mt. Sunapee this Weekend!

  • Jan 30, 2015

Mt. Sunapee snowAfter a foot of new snow this past Tuesday and another 2-4 inches falling right now, the time is right to enjoy the slopes! Purchase a lift ticket for Sunday, February 1. If the Patriots win, save your lift ticket and redeem it for a half-price ticket any day for the rest of the season excluding February 14-15. Go Pats! Experience everything that Mount Sunapee has to offer. Stovepipe and Williamson, two of the most popular trails, are now open in the Sunbowl, all nine glades are open, the bump skiing on Upper Flying Goose and Lift Line is fantastic and there are four terrain parks open with more than 60 features plus the Amp Energy AirBag. All 11 lifts will be operating this weekend including the new Sunbowl Express High-Speed Quad. Now, both lifts to Mount Sunapee’s summit are high-speed quads. Family Values on-line special is available on Sundays excluding holidays through March 29, 2015. One adult full-day ticket and one dependent junior/young adult (age 6-18) full-day ticket costs only $95. A family of four can ski or ride on Sundays for $190. Family Values must be purchased in advance on their on-line store. See you on the Mountain!

You’ll be moving in the right direction with Coldwell Banker Milestone Real Estate.

Walk to the Town Docks - New Listing in Newbury, NH!

  • Jan 28, 2015

Access Lake Sunapee via the Blodgett's Landing town dock, only steps away from this partially updated three bedroom cottage.  Town sewer, views of Mt. Sunapee and the lake from the second floor.  Offered at $194,000.  Seller is a licensed NH real estate agent.

LaVigneEmily Campbell, Listing Agent, 603-526-4116

Real estate markets are local, and we have the real scoop on ours. Coldwell Banker Milestone Real Estate

Looking Back on 2014 in Area Real Estate Sales

Donna and Maxi 044The good news for 2014 was that home prices rose and the average days on market dropped. The median and average sale prices were higher in 2014 for many of the local towns and nationally, the median price will most likely be up 5.6% from 2013. Nationwide, with one month of data left to be tabulated, existing home sales are expected to finish down 3% from 2013. In this area, New London is the only town exceeding 2013 sales. Newbury – 1/1 -12/31/14                         43 Solds                 153 Days on Market (DOM) $274,000 Median Sales Price 1/1-12/31/13                          46 Solds                  159 DOM     $251,500 Median SP New London – 1/1 -12/31/14                         89 Solds                  193 DOM     $386,000 Median SP 1/1-12/31/13                          69 Solds                  208 DOM     $350,000 Median SP Sunapee – 1/1 -12/31/14                         56 Solds                  201 DOM    $317,650 Median SP 1/1-12/31/13                          57 Solds                  218 DOM   $260,000 Median SP With a strengthening economy, solid job gains, and a healthy increase in home prices, existing home sales are forecast to rise about 7% in 2015. Contact me if you would like to know the statistics for your town and how it impacts buying and selling in this market.  Donna Forest, Broker Associate, 603-526-4116, www.donnaforest.com, donna@donnaforest.com Figures are based on information from the Northern New England Real Estate Network, Inc. for the period 1/1/13 thru 12/31/13 and 1/1/14 thru 12/31/14.

“Word of Mouth” is the best advertisement, and we love it when you refer your friends and family to Coldwell Banker Milestone Real Estate.

Categories

Search For a Home

or
Cancel