The market for eco-friendly rental properties is growing. One survey shows that 61% of consumers would pay more for an eco-friendly apartment.
While the market is growing, eco-friendly property managers are still struggling with a variety of challenges. The profit margins on rental properties are very small. Fortunately, eco-friendly properties tend to be more energy efficient, but they can still be expensive to operate.
The good news is that there are various ways that eco-friendly property managers can lower their tax burden to save money. Keep reading to learn more.
Tips for Eco-Friendly Property Managers Trying to Lower their Taxes
Managing properties as a professional or part-time property manager or renting out properties to tenants can provide a steady stream of income over the years. This income is subject to taxes. But there are also tax advantages that come with being a property manager or landlord. Understand these tax items, particularly during tax season, to minimize your tax liability and maximize your returns on investment.
Green tax benefits
The federal government offers various tax credits for going green. You will want to look into those available for businesses.
One of the best tax credits the government offers for green businesses is the 179D deduction. You can save up to $1.80 per square foot for having energy efficient HVAC systems. You can also use the tax credit for qualified electric vehicles on Form 8910. The federal government used to offer a tax credit for biodiesel fuel, but that expired on December 31, 2022. However, they may reinstate it in the future, so it is a good idea to pay attention to that.
Insurance premiums paid for an eco-friendly rental property can be considered a tax deduction for the landlord or property manager. This includes any coverage that is specifically for the rental property. The property manager can claim these deductions when filing taxes following all applicable laws and regulations.
A property manager needs to know that insurance deductions are a common expense incurred by landlords. These deductions can include coverage for the building, liability insurance, and coverage for the personal property of tenants. Landlords typically pass these costs onto tenants by including them as a line item in the rent.
Landlords should also be aware of any laws that regulate how much they can charge for insurance deductions. The local or state laws stipulate the requirements for disclosing the details of insurance coverage to tenants. Additionally, the property manager should choose the option that best fits their needs and budget.
Deductions for business travel and meals
Business travel and meals can be tax-deductible expenses for a property manager. According to the IRS, travel expenses are deductible if they are ordinary and necessary for the operation of the business and if they are not extravagant. This includes expenses for transportation, lodging, and meals.
However, there are some restrictions and limitations on deductions for business meals. For example, only 50% of the cost of a business meal is deductible, and the meal must be directly related to the business and not considered entertainment. Also, the property manager should keep detailed records of business travel and meals. Having a wealth of experience in the real estate market, experts working for Evernest property management in Memphis, Nashville and Chattanooga in Tennessee provide you with guidance on the deductions that apply to you as the property owner. Tax laws related to properties are complex so they need a good understanding of every aspect related to them. This is why consulting the best in the field is a safe move.
Deductions for office expenses
Office expenses can be tax-deductible for a property management business. These expenses may include items such as office rent or mortgage, equipment, and supplies. Telephone, internet service, and other expenses related to running the office can also be included in the list of deductions.
The property manager must keep receipts and invoices of all office expenses to claim these deductions when filing taxes. Some office expenses may be partially tax-deductible. In the case of office rent that is partially used for business purposes, only the percentage of the space used for business is deductible.
Check any specific regulations that may apply in your state, as they may have different tax laws that affect how office expenses are treated for tax purposes. Consult with a tax professional or accountant to ensure that they are taking advantage of all relevant tax deductions and following all applicable laws.
The pass-through deduction is also known as the qualified business income deduction. It is a tax provision that allows owners of pass-through businesses to deduct a portion of their business income from their taxes. Such businesses are sole proprietorships, partnerships, S-corporations, and certain types of LLCs.
The pass-through deduction was created by the Tax Cuts and Jobs Act of 2017, and it is available for tax years 2018 through 2025. The amount of the pass-through deduction is generally 20% of the business’s qualified business income. But there are limitations and phaseouts based on the business’s income and the type of business.
Deductions for long-term assets
Long-term assets are assets that are expected to be held and used by a business for more than a year, such as property, equipment, and vehicles. These assets can be tax-deductible for a property management business through depreciation. It allows a business to deduct a portion of the cost of a long-term asset over a period.
The IRS has set up guidelines for how long an asset can be depreciated. This period is known as the recovery period. The recovery period for rental properties is 27.5 years for residential properties and 39 years for commercial properties. When you dispose of a property, you need to recapture any depreciation previously taken. In other words, when the property is sold, there may be taxes on the capital gain of the sale.
Eco-Friendly Property Managers Must Claim the Right Tax Credits
The market for sustainable properties is growing, but the sector is still facing some challenges. Many eco-friendly property managers struggle with cash flow, partially due to tax problems.
Eco-friendly property management can be a complex and nuanced field, with a wide range of tax deductions and regulations that property managers need to be aware of. This information is crucial for tax purposes, and it will help you ensure compliance with all tax laws. By understanding the various tax deductions available, property managers can minimize their tax liabilities.