Tax Deductions and Record Keeping Can Save Landlords Big Money

Written by Posted On Sunday, 14 January 2007 16:00

If one of your goals in 2007 is to become a landlord by buying a house, condo, or even small apartment complex, the first thing you should do, if you haven't already, is begin to educate yourself about becoming a landlord. If you're already a landlord then you likely know that ongoing education in this ever-changing industry is a must.

Some say it's the best job in the world. While owning rental property is certainly attractive and enticing from the standpoint of padding your bank account with some extra cash, most well-seasoned landlords will tell you experience, research, and networking are their best tools for survival.

Scott Brueggeman is the publisher of -- a website that helps visitors get information they need on owning and managing rental properties. Brueggeman has 20 years of business experience and has been a landlord for seven years. He says one of the most important considerations is the business structure that you will use to purchase and operate your rental property.

"The easiest, of course, is a sole proprietorship which doesn't entail any special filings or other things; it's just owned as an individual," says Brueggeman.

He says the majority of small investors usually fall into the category of sole proprietorship. But Brueggeman cautions there is a downside. "The downside is that as a sole proprietor you do open yourself up to additional personal risk in that if something happens on your property, you not only put your property at risk but you can also put your personal assets at risk."

That's why some investors explore alternatives such as: Partnership—if you co-own or manage property with others; a corporation (the more common, C or general corporation, and the S corporation)—these can be the most beneficial for some owners but also the most complex of the business structures.

"That's why most property owners look at corporations or LLC. "My experience of most of the people who come to the [web] site is that most small property owners look at an LLC as the most flexible and the best tax status for them," explains Brueggeman.

Another important aspect of being a landlord is good record keeping; this can save you thousands of dollars and headaches come tax time. Brueggeman says many records should be kept seven years.

"I think that many landlords miss out on deductions because they don't keep the proper documentation or they're not aware that a certain expense is deductible," says Brueggeman.

Here are some areas that landlords should be certain to record: mileage to and from the rental property, advertising for the property, cell phone use, computer equipment and office supplies, desk equipment, telephone line (if you have a separate line the office line can be fully deducted), Internet access, and house cleaning for the rental.

"If you have a cleaning company come in to clean your rental unit, after somebody moves out, those costs are deductible. If you need to buy office supplies it might be computer paper, pens and printer cartridges, postage if you're mailing out reminders [to] somebody [who] might be mailing the rent late or you need to send somebody a lease to sign -- [all are] also deductible.

Working with a qualified tax person can help you discover any deductions you might be missing and also make sure that you are operating by the appropriate IRS laws.

Brueggeman says that landlords often get confused whether repairs and improvements are tax deductible.

"There is a big difference between ordinary and necessary versus improvements. Improvements are things that add value to the property or prolong its useful life. For example, adding a bedroom or a deck -- you cannot expense those, you need to depreciate [them]," says Brueggeman.

When you make an improvement to your property the IRS requires that you depreciate it. Using the Modified Accelerated Cost Recovery System (MACRS) a landlord can deduct a portion of the improvement expense over a period of 27.5 years.

Remember, Improvements are things that add value to the property such as room additions -- bedrooms, a deck, or a garage. Also new heating or air condition systems and even a new hot water heater are considered improvements.

Repairs such as repainting the inside and outside of the rental, fixing a floor or a leak in a pipe, replacing a broken window, and plastering a wall are considered ordinary and necessary repairs which Brueggeman says qualify for a tax deduction in the year that the work is done.

But, of course, Brueggeman says the best rule of thumb when it comes to tax information and rental properties remains: "If in doubt, you probably want to run it past your accountant."

For more information and advice for landlords, visit . Brueggeman's upcoming publication called Tax Planning Secrets for Landlords will be posted on the site February 5, 2007.

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Phoebe Chongchua

Phoebe Chongchua is an award-winning journalist, an author, customer service trainer/speaker, and founder of Setting the Service Standard, a customer service training and consulting program offered by Live Fit Enterprises (LFE) based in San Diego, California. She is the publisher of Live Fit Magazine, an online publication that features information on real estate/finance, physical fitness, travel, and philanthropy. Her company, LFE, specializes in media services including marketing, PR, writing, commercials, corporate videos, customer service training, and keynotes & seminars. Visit her magazine website:

Phoebe's articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, Rancho Santa Fe Review, and Today's Local News in San Diego, as well as numerous Internet sites. She holds a California real estate license. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe's writing is also featured in Donald Trump's book: The Best Real Estate Advice I Ever Received and The Complete Idiot’s Guide to Buying Foreclosures. She is the author of If the Trash Stinks, TAKE IT OUT! 14 Worriless Principles for Your Success.

Contact Phoebe at (858) 259-3646 or [email protected]. Visit for more information.

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