No matter the type of property you have as a property owner in the D.C. area, you've likely felt the sting of paying your taxes—and wishing there were a few more items that you could deduct to lower your tax burden. As expert property management, D.C. investors, we also recognize the challenges of balancing your budget as a property business owner while making sure to pay all you legally owe the IRS.
Thankfully, various tax deductions exist to aid property owners in the D.C. rental market and allow you to maximize the money you spend on your rental properties. A knowledgeable property management partner like EJF Real Estate Services has experience managing financial elements for individual investors and community associations alike—and we're able to help you find the deductions that you have rightfully earned as an investor.
Tap into these benefits of owning rental real estate in D.C. at tax time to experience more of the perks of ownership—and less of the pain.
Please note: This post is not a substitute for proper legal counsel or tax advice and contains current information at the time of its publishing. When in doubt, it's best to reach out to the professionals at EJF Real Estate Services or obtain guidance from a skilled attorney.
Deducting Property Tax and Mortgage Interest
One of the first places to look for a simple deduction from your taxes as a property owner is the property tax you pay and the interest you pay on your mortgage.
- While you can't deduct the principal you pay each month—which translates to equity in your property—you can deduct interest you must pay.
- This interest is often a substantial part of your payment during the early years of a mortgage, so this simple deduction can save you significantly in taxes.
- You can also keep track of the property taxes you pay in your jurisdiction and deduct those taxes if you happen to be keeping track of such figures. If you haven't been, you should be.
Be aware that there are always some exceptions and edits made to property tax law and interest deductions, including a few new additions from 2017 with the introduction of significant tax reforms.
To ensure that these two deductions still qualify for your rowhome or condo, you'll want to double-check with your accountant or with expert property management D.C. offers investors.
Basic Business Administration Expenses Can Be Deducted
Remember: If you own rental properties in D.C., you are running a business.
As such, some of the expenses you incur in the process of renting your properties are tax-deductible. Some expenses (such as home internet) that are hard to divide up into personal and business use. However, there are some reasonably straightforward expenses—such as the costs to advertise on a rental listing website—that are deductible as business expenses.
You can dive deep into how to deduct, for instance, the cost of maintaining an office, in a way that you can document and justify if need be.
Expert Property Management Services Count as a Deduction
If you've yet to employ property management, D.C. investors, this is one incentive to make the leap. While management services may appear to be an additional expense at the outset, they ultimately translate into a deduction at tax time.
Whether you rely on full-service management to meet your every need as an investor or turn to property management occasionally for your leasing needs, either counts as an opportunity to write off the expense. This is one service that truly pays for itself!
Make Materials and Labor From Repairs Work in Your Favor
One of the most significant expenses you'll encounter as a D.C. property owner are the small and medium-sized repairs you'll make to your property to maintain its value and offset wear and tear. The age of your investment properties will understandably affect this cost—as will their construction. Rowhomes and condos in D.C. face different challenges from single-family homes.
Ideally, a property would stay in good working order for many years after purchase. However, there will inevitably be things that break down, wear out, and will need to be replaced. If your vinyl planking is scraped or your hardwoods are chipped, you may need to replace the sections that are damaged; such fixes are deductible.
When plumbing is broken, you'll have to fix it so that it can be functional for your residents—and those costs are deductible! However, your ability to eke savings from a stone depends entirely upon your skill at recordkeeping. If you find paperwork to be a point of dread, leaving this in the hands of property management, D.C. investors, can be a major benefit.
Rather than worrying over whether you saved the receipt for that repair, your property manager has already handled the fix and prepared a proper record of the maintenance visit. When it comes time to file, your house will be in order—figuratively and literally.
Determine Improvements Versus Depreciation Deductions
While repairs are 100% deductible, improvements are a different story. While the line may get a little blurry, most projects fall clearly into two categories:
- An update or renovation that adds major value to the property, or
- A fix that brings your D.C. investment property back to working order.
Adding a new room, stripping out linoleum to outfit your property with luxurious new flooring, or rewiring the whole home are examples of major improvements that cannot be deducted like repairs. Instead, they are treated as 'capital expenses,' which must be deducted as they depreciate.
Depending on the year, you'll be able to deduct a few percent of the total amount of the original improvement cost, since that improvement brought you value and only depreciated in value a little bit each year.
Rely on Our Research and Expertise
You can research more about your particular repairs and improvements to make sure that you accurately complete your taxes while getting as much value from your qualified deductions as possible. However, don't forget that professional property management, D.C. investors, is also a resource!
As an expert provider of both property management and community association management services, EJF Real Estate Services has experience understanding the fine financial details of investment properties. We work with a wide variety of property types in the D.C. rental market, from single-family homes to condos, so we can help you navigate the particulars of your portfolio.
However, not every property manager in the D.C. area can provide such an extensive level of care and service. How do you know you're working with the best one? Survey your current property management partner—or carefully select a new one with ease—using your free copy of our Guide to Finding the Best Property Management Professional in Washington D.C.!