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Tax Hints for Denver Landlords

July 6, 2016

The inventory of homes in Denver is notoriously tight and property values remain high. There aren’t very many steals to be had in the real estate market these days so the profits of buying and flipping homes have come down. With the cost of rents soaring in Denver and all along the Front Range, many have entered into the rental market instead selling the homes.

Buying and quickly selling a home requires the seller to pay a large sum in capital gains on any profits made as well. Renting on the other hand offers the landlord an array of tax deductions so that they can put more money in their wallet vs. sending it to Uncle Sam in April. Our Denver tax consultants are well versed in capital gains, depreciation, and can advise you about the advantages of possibly forming an LLC.

Should You put Your Rental Properties into an LLC?
As with anything, there are plusses and minuses of forming an LLC. Before making a decision one way or another, sit down with one of our tax advisors who will help you weigh the pros and cons of your particular situation. The main advantage of an LLC is asset protection. If your tenant, or one of their guests, decides to sue you, your personal assets are protected. This isn’t failsafe though. For instance, if you do form and LLC be sure to keep your assets separate from your personal funds or someone suing you may be able to claim that it is not a separate entity and you would lose your protection.

The main tax advantage of forming and LLC is that you use what is called pass through taxation. This means that the business itself is not subject to tax but rather the owner will be taxed individually on their income. This avoids double taxation. One of the disadvantages of going the LLC route is that it is not free. There is usually a state fee of between $100-$200 and in some states there is an annual fee as well.

Know the Difference between Repairs and Improvements

Repairs are defined as anything that puts your property back into the same condition while improvements are anything that enhances the property. Repairs can be expensed in the year that they were done. Improvements, on the other hand must be capitalized and the tax advantages will come over time in the form of depreciation.

The Cost of Doing Business
Save those receipts. If you’ve got to drive to and from the property to collect rent, track your mileage, it’s deductible. Any supplies that you have to purchase to keep the property up are also deductible. This can include anything from weed and feed, to wasp spray, to caulk for the shower. If you speak to a lawyer or tax consultant about the property, their fees are deducible as well. These and many other deductions may save you money come tax time so don’t delay talking to a tax advisor.

If you’ve recently entered the real estate investing game be sure to speak to one of our tax advisors. They can help you keep more of the money that you have worked so hard to make and keep you out of any pitfalls that you may not be aware of. Our tax planners can be reached at 303-321-7160.