Tax time double-check: easily missed deductions

This article highlights easily missed deductions that can significantly affect your tax liability. As we will see, most of our list focuses on deductible expenses that won't appear as a payment from your bank account.  

Want a real-time look at your REI Hub books to see if you have everything below?  Check out our built-in Tax Review! 

This seems obvious, but it can be surprisingly easy to forget to enter an expense and, therefore, pay too much in taxes. Booking all of your rental-related transactions will result in an accurate accounting of your revenues and expenses for that year. This is easy if you have a dedicated rental bank account for all related transactions, and it is even easier if that account is linked to your accounting software! 

Don't forget to enter any additional transactions you may have paid out of pocket or from a different bank account.  Overall, make sure you have entered all your revenues (rent, fees, etc), operating expenses (your Schedule E expenses), and other expenditures (capital expenditures/ fixed assets).

Depreciation is the mechanism through which investors recover the costs of buying and improving rental properties.  Depreciation is a tax deduction and not a directly incurred expense; you won’t see it come across your bank feed.  

Every owned investment property (that hasn’t already been fully depreciated) should have a depreciation entry for every tax year.  Other fixed assets, such as large improvement projects, should also be depreciated.  Different kinds of fixed assets have different useful lifetimes and are, therefore, depreciated on different timelines.

In REI Hub, you can enter depreciation on either a per-asset or an uncategorized basis. If you are tracking your fixed assets in REI Hub, enter depreciation per asset. If your tax preparer is managing depreciation on your behalf, you can add a general entry (based on their calculations) for your entire portfolio.  

It is essential that depreciation deductions are included in your taxes.  Tracking it in REI Hub is optional but highly recommended.  Regardless, you and your tax preparer should be on the same page about who is responsible for calculating annual depreciation and maintaining records.  

The IRS allows rental property owners to deduct miles driven while maintaining or managing their properties. Because this is an operational tax deduction without a direct expense hitting your bank account, it is an easy omission for many investors.  

Add trips to the Mileage Log in REI Hub (under Organization) to get credit for your deductible miles driven.  The required fields match the information the IRS asks for.  

Mileage deductions will be rolled into the Auto & Travel expense category of Schedule E. However, they will not display on the Net Income, as they are not directly incurred expenses.

Some mortgages include an escrow component. You pay the mortgage servicer extra every month, and then they pay property tax and insurance out of that escrow account. 

The escrow component of your mortgage payment is a transfer, not a direct expense.  The IRS requires you to report your actual expenses, not your estimated expenses.  Therefore, you can't just report the escrow transfers as property tax or insurance expenses; instead, you must enter the actual expenses.

Since these expenses are paid out of your escrow account on your behalf, you will not have an imported transaction from your operating bank account to prompt you to book them. So, if you have an escrowed mortgage, don't forget to book those annual property tax and property insurance expenses!

Use the REI Hub Tax Review to double-check your books for these easily missed deductions. We hope this double-check helps rental property investors claim the most deductions possible! 

If you have any questions about your rental property bookkeeping with REI Hub, please contact us.