The end of the year is almost here, and for Portland Oregon real estate investors, this means getting ready to close out the 2020 tax year while preparing to take advantage of end of year opportunities to add new rental properties to your investment portfolio.
Tips For Closing Out The 2020 Real Estate Tax Year
Verify vendor and contractor information
Touch base with each vendor or contractor you’ve worked with throughout the year. Make sure you have the correct federal tax I.D. number and mailing address.
If you are a property manager, this includes reaching out to each of your property owners.
Issue and file 1099-MISC forms
Typically, 1099-MISC forms must be sent to recipients by January 31 and to the IRS by January 31 if there is a nonemployee compensation amount in Box 7. If there is no information in Box 7 (this is rare), the deadline is extended slightly.
As a property manager or landlord, you are required to issue 1099s to any service provider who received compensation higher than $600 for work related to your investment property. It might seem easy to not issue 1099s as you hire handymen or other laborers throughout the year, but penalties from the IRS can be quite steep and are not worth the risk.
Tax Deductions for Real Estate Investors
Deducting expenses related to managing a rental property is one of the main benefits of investing in real estate. Make sure to keep excellent records and do some research (or hire a professional) to look into all of the deductions and credits you may be eligible for.
A few examples of real estate investment-related tax deductions include:
- Property repairs and maintenance
- Property tax
- Insurance
- Travel costs
- Mortgage interest
- Depreciation
- Operating expenses
Business-related deductions often catch the eye of the IRS, so be sure you can provide proper receipts and can justify the business necessity of each claim in the off-chance that you are audited.
How to Fund Your Retirement Accounts as a Real Estate Investor
Most of the time, the deadline to fund retirement accounts for the previous year is April 15, but some specific accounts have a December 31 deadline in order to be deducted. It is crucial to plan ahead and know your tax deadline to ensure your accounts are in place by the correct deadline.
If your investment grows substantially over the course of a year, you may want to consider a Roth IRA to keep your profits tax-free. If your investment has modest growth or loses money over the course of a year, you may consider converting your Roth IRA to a traditional IRA without facing any taxes or penalties. Understanding your options and what will work best for your portfolio can have some significant tax advantages.
How to Save Money on Taxes by Spending Money on Your Property
No one likes the idea of handing over money sooner than necessary, but in some cases, it makes the most sense. For example, if your investment property is generating substantial profit, it might be worthwhile to pre-pay recurring bills that aren’t likely to change—think insurance, disposal, landscaping—to bring your income level down for the year. On the other hand, if your investment is going to be negative, you may be able to write off your losses and expenses to show no income.
Another option to consider before tax season to reduce your taxable income is to purchase items or make other pending repairs. Replacing worn-out appliances, repainting, mending broken fences, and other similar activities can turn out to be a wise investment.
How to Prevent a Tax Hit When Selling Real Estate
Selling an investment property is not a decision to be taken lightly. The tax pros and cons should be carefully considered before pulling the trigger. Selling your property at a gain in a year during which you have many tax breaks (and therefore less taxable income) can be a strategic move.
Every situation is unique and depends on your local market. Be sure to consult with a tax advisor or financial planner before you make the official decision to sell.
Are You Planning On Adding New Portland Oregon Rental Properties To Your Portfolio?
Besides getting ready to close out the end of the year, the next 30 days are also an excellent time to add Portland Oregon Rental Properties to your investment portfolio.
Thanks to the holidays, family gatherings and vacation, mid December through early January is a great time to buy real estate because you’re going to pay almost fair market value for real estate in Portland or elsewhere nationwide.
For context, in June, homes were selling nationwide for an average premium of 6.9%. That premium is forecast to improve to just 1.5% in December, per ATTOM’s report.
The analysis goes on to examine prices state by state: “According to the study, the states realizing the biggest discounts below full market value were Ohio (-7.4% in January); Michigan (-7.2% in February); Delaware (-6.3% in February); Tennessee (-6.2% in January); and New Jersey (-5.8% in December).”
Make 2021 The Year That You Hire A Property Manager
Are you tired of managing your rental properties yourself? If so, make 2021 the year that you hire a property manager to professionally manage your rental properties.
At Rent Portland Homes, we specialize in full service property management and can save you the time, money and hassle of managing your investment properties yourself.
Some of the services that we can offer you include rental property marketing, maintenance, rent collection, tenant screening, placement, collections, accounting, customer service and more!
With two offices in the PDX area to serve you from, our company knows Portland and can offer you superior service that will enable you to generate long term ROI from your properties.
For more information about the services that we can offer you, contact us today by clicking here.
