The year is rapidly coming to a close and while there may be plenty of eggnog to go around, there’s not much time remaining to take care of a few key end of year items related to your rental properties. Here’s a short checklist of key decisions, smart preparations, and friendly gestures you may want to make before January 1, 2019.
Pay Outstanding Property Taxes in Advance
If you haven’t already produced a year to date income statement, now is a good time to get your transactions in order and run the report. If you’re projecting a healthy amount of net rental income for 2018, then you may want to consider making an additional property tax payment before December 31.
Many states issue tax bills in October and November, with a first payment due shortly thereafter and subsequent payments not due until the new year. If your rental properties are located in one of these states, then you have the option to make those subsequent payments earlier if you like. By doing so, you’ll take the cash flow hit a few months early but you’ll see the benefit of the increased property tax deduction as soon as you file your 2018 return.
Tally Up Your Mileage for 2018
Rental property owners often fail to take advantage of the tax deduction for mileage expenses simply because of poor record keeping practices. If you used your personal vehicle for trips related to your rental property investments, you can deduct the mileage at the IRS standard rate (54.5 cents/mile in 2018). Technically, the IRS requires you to maintain a “mileage log” of your trips including miles driven, dates, locations, and the business purpose of the trip for each entry.
The end of the year is the perfect time to spend a couple hours looking back over your calendar to make sure you’ve logged each trip in a spreadsheet or via your Transactions page in Stessa. If you’re using a spreadsheet to keep things simple, you can tally everything up and then create a single expense entry for all of 2018 in Stessa at the 54.5 cents per mile rate. Input the total dollar amount value for the year, date it 12/31/18, and then categorize it as “Admin & Other > Mileage.” Finally, you may also want to resolve to be more organized in 2019 and start tracking your mileage automatically via an app for your mobile device. TripLog and MileIQ are both good standalone options.
Pay All Outstanding Invoices
If you have renovations in progress, unpaid repairs and maintenance invoices, or outstanding legal or accounting fees, you may want to pay in full before the end of the year. If you let them slip to January, you’ll only buy yourself a few weeks of extra time and you’ll then have to wait an entire year to claim the tax deductions.
Since passive losses aren’t available to offset regular income, you’ll probably only want to take this approach if you’re expecting positive net rental income this year. The other great thing about paying your contractors, handymen, and trusty lawyers and accountants early is that nearly everyone can use a little extra cash around the holidays. They’re likely to appreciate the gesture and give you and your portfolio a little extra attention in 2019.
Analyze Utility Expenses for Cost Saving Opportunities
With colder weather settling in across much of the country, December is a good time to tally up charges incurred for gas, electric, water and trash collection services so far this year. Once all your monthly charges are accounted for in Stessa, run an income statement by month to see how each line item varied over the course of the year.
Outliers are relatively easy to spot and can often lead to opportunities to significantly reduce expenses by fixing water leaks, installing smart thermostats, and switching to energy-saving light bulbs, among other options. Since gas, electric, and water usage is typically seasonal, you can also use these monthly totals from 2018 as a baseline against which to compare your actual monthly bills in real-time during 2019.
Assess the Impact of 2018 Tax Law Changes
The Tax Cuts & Jobs Act is generally good news for rental property owners. Lower federal income tax rates on ordinary income across all tax brackets will yield savings for owners who hold title as an individual or via a pass-through entity. If you sold an investment property in 2018 the long term capital gains will be subject to essentially the same taxation as they would have been in 2017. Depreciation deductions and recapture are also unchanged from prior years, as are Section 1031 like-kind exchanges.
Notably, the prized deductions for mortgage interest and state and local property taxes associated with investment property were preserved in the Tax Cuts & Jobs Act, despite the introduction of limitations for these deductions on personal residences. Finally, Section 179 deduction rules were liberalized and the bonus depreciation deduction for qualified property was increased to 100% in year one.
Be sure to ask your CPA if you can take advantage of any of these provisions as it relates to your rental property investments. It’s also worth asking if there’s anything else you can do before December 31 to maximize your 2018 deductions.
Send Gifts or Handwritten Cards to Your “Team”
Even the most solitary rental property owner has something resembling a “team.” Maybe it includes your two best tenants, your most reliable contractor, and your trusty CPA. Perhaps your portfolio is growing and you’re bringing on investors. The end of the year is the perfect time to remind your vendors, partners, and favorite tenants that you appreciate their reliability and hope they stick around.
If you don’t have the budget for gifts, a simple handwritten card thanking someone for the work they’ve done for you this year goes a long ways. They’ll remember it come January and will show up ready to deliver for you.
Prepare Your Stessa Account for 2019
The new year is an opportunity to get organized by resolving to track all your rental property income and expenses on Stessa monthly. Here’s what you can do now to give yourself a headstart come January 1:
- Make sure all relevant checking, mortgage, and credit card accounts are connected to your Stessa account so you can see everything in one place.
- Add all investment properties you own to Stessa and organize them into “Portfolios” by geography, ownership entity, or other criteria.
- Use Stessa’s valuation widget to input end of year values for all properties.
- Run an income statement and net cash flow report to get a sense for how each rental property is likely to finish up 2018.
- Use the blue circle in the lower right corner of your screen to tell us what you’d like to see Stessa change, improve, or add in 2019!