Real Estate Taxation (How To Avoid Limiting Rental Property Tax Deductions!)


YouTube family what’s up what’s
happening!? It’s so good to see all of you thanks for joining me because I know it
takes time out of your day to be here you guys have been requesting videos on
real estate taxation and how people save money with with real estate when doing
rental properties and things like that well through all the comments the the
pleading the twisting of my arm on crying uncle I’m crying uncle so this is
the first ever video on real estate taxation on the channel it’s about time
because I know there’s a lot of investors out there who not only like
investing in the stock market but also like the idea of investing in real
estate and whether you’re already in a rental property manager whether you
already have rental properties or not I think this video is really going to help
you and it’s gonna help you learn the rules and we’re gonna learn the rules
one step at a time real estate taxation just like a lot of
other areas attacks has a lot of different layers there’s layers of
complexity so I think the best way to digest this elephant and eat the
elephant is one bite at a time and that’s exactly what we’re gonna do today now there’s no question that real estate
offers numerous tax advantages and can be a wonderful investment for you
absolutely wonderful but if you’re currently a landlord are thinking about
becoming the landlord one of the first things we need to teach you is how to
not lose tax deductions and there are several ways to lose tax deductions with
real estate and that’s no bueno no bueno now I don’t know for sure I
don’t but I’m guessing here that all the people across the internet across the
radio across television trying to sell you their fancy smancy course on real
estate investments and getting rich quick and getting rich in passive income
bla bla bla bla bla I am highly doubting that they’re talking about the things
I’m about to talk about in this video I doubt it
you know why because limitations on tax deductions versus getting rich fast it’s
not a good selling point they want to sell you on get rich fast I’m gonna sell
you on reality and I’m gonna teach you as a professional because I’ve been a
CPA now for over eight years I’ve been doing the county now for eight years of
how this stuff works when it comes to real estate taxation
one of the first areas I want to cover with you guys is limitations on
deductions because it’s very important you know these upfront because if you’re
doing the wrong things and of how you manage your property may allow you to
deduct the full all of your expenses or very little so it’s very important we
know what the limitations are so that’s where I want to start here as we’re
getting started here if you want to support the channel the work idea here
you can do so by dropping a like leave a comment and consider sharing this with
others your engagements guys you’re an interactions in the comments section is
hugely important to me and I read every single comment and I try to respond to
as many people as possible this is gonna help you learn more about the business
of rental real estate but you know being a good investor I think it not only
takes an understanding of how to manage a property or how to you know rent out
properties and manage them successfully but also knowing the tax impact and how
to minimize your tax impact on the rental income you’re making it’s just as
important as knowing how to manage the property in my opinion this information
is going to help you accomplish that so in today’s video we’re gonna discuss one
of the most basic and common limitations known as
personal use de limitations personal use de limitations remember that so many
people run out and purchase a rental it’ll often times it could be a vacation
rental someplace nice near the ocean near the forest in the mountains
whatever right well these these same people if they they go and they think
that they can use the property whatever they want whatever they want and still
think they can deduct all the expenses on it well they couldn’t be more wrong
there they could not be more wrong about that now believe it or not believe it or
not a rental properties more like running a business right there’s a lot
of things you need to keep track of and taxes is one of them taxes for a rental
real estate involves a lot of tracking and record-keeping and one of the first
things for you to get used to tracking is the number of days the number of days
you use the property personally so this is known as personal use days that’s
where it gets the same from it’s those days that you’re using the property
personally now if you’re not using a property personally if you’re not and
you’re renting it out the property or have it up for rent at fair market value
rents fair market value that those are known as not personal use days but fair
writ days okay so there’s two concepts personal use days and fair rent days got
to know both and what those means dad first I’ll use days mean you just
firstly use the property for your own personal use well it does shipper but
there’s actually more to it than that as you’re about to see personal use days
has a broader definition than you might think
and so let’s discuss that a very very common example of that is let’s say that
somebody buys a vacation home near the beach most of the year they have it
available for rent right but a few weeks of the year they live in the home and
use it personally but those days for them are known as personal use days now
important distinction is if you’re not renting out the property but you go to
your beach home and you’re just there to fix it up you’re not there to stay in it
but you’re trying to improve it you’re trying to repair it then even though
you’re in it and using it personally it’s not counted against you as a
personal use day now here’s where a lot of people get
hung up and get in trouble without even realizing it so let’s say you have a
home whether it’s near the beach or just you have an extra property in town and
you have a son or daughter right well and I as a CPA hear these stories all
the time well what do they do what are the parents do
they want their kids to be able to live somewhere well and they no cost of
living now is ridiculously expensive but mom and dad has an extra vacation rental
or they have an extra property that their kids can live in right so let’s
say their son goes and rinse out the property from their parents well in
being a good parents being a caring parent they got mom and dad say well you
know normally the rent for that property is a thousand a month but you know
Johnny he’s been a good boy he’s gonna get a good son Johnny you only have to
pay US $500 a month that way you can help pay your student loans you can help
save for a home and whatever so Johnny don’t give us a thousand a month just
give us five hundred dollars a month so the question is is that a fair rent day
our fair rental day or is that counted as a personal use day well as long as
johnny is in the home renting that property for less than fair market value
those are all known as personal use days and that’s going to be accounted again
that’s gonna count against whatever deductions the parents have on that
rental property so even if you don’t use it personally but you let one of your
friends or family members or whoever rent it from you at less than fair
market value rents that is known as personal use days okay I think I’m
starting to understand this but how much is it gonna limit your deduction well
depending on how many personal use days a person has versus fair rental days
your real estate deductions could either become fully deductible partially
deductible or if you have too many personal use days no longer deductible
whatsoever what do you mean by partially deductible
by partially deductible I mean you must prorate the expenses between tax form
Schedule II which is the form for rental real estate and Schedule A which is
personal itemized deductions based on the number of personal use days versus
fair rental days now if that sounds confusing don’t worry it is but let me
give you guys an example and hopefully it will clarify it a little bit let’s
say chipper has a rental property and out of the whole year he uses the
property personally 25 percent of the year and the other 75 percent of the
year he legitimately rents out the property at fair market value rents are
its fair rental days right it’s cheaper gonna be able to deduct all
the expenses on his rental property the answer is no he’s not going to be able
to do that and why because chipper used the property personally 25 percent of
the year now for personal use days we don’t need to know how chipper use a
property personally just that he did in some way or another he probably snuck
away from his spouse so we could get some fortnight game time in and of
course by doing so he really messed up his tax deductions okay so let’s say
that on chippers property that is as rental let’s say the property taxes for
his rental is three thousand dollars in total for the year from a tax deduction
standpoint this is how this would look for property taxes on Schedule E chipper
can deduct up to 75 percent of the property taxes which 75 percent of 3000
is two thousand two hundred fifty dollars
however since chipper used the property personally for 25 percent of the year
then the other 750 of that 25 percent of the 3000 must be reported on chippers
itemized deductions Schedule A now if chipper can itemize he’s gonna get that
deduction but if you can’t well he just loses it that’s just how it works
this type of allocation may apply to other rental expenses for this property
as well such as mortgage interest and utilities and repairs and other such
expenses may or may not be subject to these limitations depending upon the
circumstances so as you guys can see from this example knowing this first
limitation for rental real estate is very important because it’s going to it
recordkeeping you’re gonna do it’s imperative you do it ladies and
gentlemen because if you want to maximize your tax deductions and avoid
the IRS and audits you want to make sure you’re doing this right and have records
to prove it so it’s imperative that you track your personal use days versus fair
rental days on every property you own now oftentimes if you use a property
manager they’re gonna track this for you so you don’t have to worry about it but
it’s something you need to know about as a landlord or as a real estate
professional now Mike those rules are really helpful to know but other
exceptions to these rules good news is there are exceptions the first exception
is if there are more than 14 days of personal use and the home is rented for
14 days or less no allocation is required the home is
treated entirely as personal use property so if you rent out the home for
less than 14 days and you use it for about 14 days there is no allocation
because the property is still 100% personal ouch no tax deductions in that
case right however let’s talk about the second exception there is no personal
use a limitation no personal use a limitation at all if you use the
property for no more than the greater of 14 days or 10% of the number of days
rented at fair market value rince so let’s say you use the property of 365
days let’s say you use it personally for 14 days but the rest of the year you’ve
rented it out right you’ve rented out that property and that by doing so guess
what good news no personal use a limitations apply to you at all now when
it comes to personal you state limitations this is really the bulk of
what you need to know now knowing these rules is gonna help you better
understand how to manage your properties from a landlord perspective and save you
taxes at the same time now I wanted to start the video here this video series
with personal you state limitations because most people when they’re
thinking about real estate all they hear in the media all they hear being
advertised to them and all these fancy real estate courses of get-rich-quick is
is how much money they’re gonna save in taxes by owning rental properties
that’s it’s not that simple it’s not and their their focus is to sell you a
product my job in this channel is to actually educate you on what the real
rules are so you can not only minimize your taxes but be a better landlord at
the same time and maximize your profits like I said earlier in the video this
stuff can be very complicated and there’s layers and layers of rules to
understand when it comes to rental real estate and tax limitations and if you
guys like I said if you show a lot of support on this video I’ll keep cranking
these things out so that when you do become a landlord someday or if you’re
already landlord you know better of what to expect when it comes to taxes if you
liked today’s video make sure you drop a like before you leave share this
information with a friend a friend who’s either a landlord or somebody who’s
thinking about becoming a landlord I’d greatly appreciate that and if you’re
new to the channel welcome be sure to subscribe because on this channel we’re
our goal and mission is to help you become fiscally fit as we need finances
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channel have a great week everybody thank you
once again for spending time with me over youtube I can’t wait to see you in
the comments until next week live life on Kage and take care pace

12 Replies to “Real Estate Taxation (How To Avoid Limiting Rental Property Tax Deductions!)

  1. Time stamps so you can jump to any point in the video!
    0:00 Introduction to Real Estate Taxation
    3:18 Personal Use Day Limitations
    5:00 Personal use day example
    7:22 Allocating rental expenses
    10:25 Personal Use Day Exceptions

  2. Our Complete Tax Video Library Can Be Found Here:

    https://www.youtube.com/watch?v=-O1SWSdWTGE&list=PLSofnwEEZdUwO76397C824IRz5xofXEQz

  3. What's up internet? Thanks for all the requests for this video. I think I had somewhere between 10 and 20 requests for this topic. If you want to learn more about rental income taxation and how this stuff works just CRUSH the heck out of that like button, leave a comment or share this info with others. I can teach you most , if not all of the tax law around rental real estate if this video gets a lot of support. By a lot of support I mean a few hundred likes. Thank you so much for continuing to support the channel and the work I do here.

  4. That right there is what got me into financial planning in the first place. (LEGALLY) paying less in taxes just to have enough money over to invest your way to living your dream.

    Great video and a great general mindset behind what you just said, Mike! Keep it up, brother.

  5. I do rent to my oldest son. I charge him only a $150 a month due to the fact that he has 2 jobs, 1 he works at the hospital and other one hes in Army Reserve which every year hes not always here. I still use the up keeping of my home as tax deductible because he still pays even though hes away serve in a country.

  6. Looking forward to more videos like this… Just bought our first rental property this year and NOT looking forward to tax time 😩

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