CONTACT FORM
Quisque tincidunt ornare sapien, at commodo ante tristique non. Integer id tellus nisl. Donec eget nunc eget odio malesuada egestas.
SEND
Location & Address
Login form
Sorry, User can NOT register!

9 Rental Property Tax Deductions for Landlords

July 8, 2024

Being a Real Estate Investor and Landlord can significantly bolster your savings, but it also involves considerable work. Beyond purchasing the property, you must find tenants, secure insurance, pay a mortgage, and cover property taxes. Renting out a property can also complicate your personal tax situation. Fortunately, the government allows deductions for certain expenses associated with running a rental property. The IRS stipulates that deductible expenses must be ordinary, necessary, and generally accepted in the rental business.

A financial advisor can assist in managing the tax and financial implications of your real estate holdings.

Top Rental Property Tax Deductions

As a rental property owner, several expenses can be deducted from your taxes to save money and improve your overall operation. The nine most common rental property tax deductions are:

1. Mortgage Interest

Mortgage interest is typically the largest deductible expense for landlords. You can only deduct interest payments, not the principal. Monthly statements separate these components, making it easy to reference the annual total interest by multiplying the monthly amount by 12. Additionally, you can deduct origination fees, points used to purchase or refinance the property, interest on unsecured loans for improvements, and credit card interest for rental-related purchases. Consulting an accountant or financial advisor can help navigate these deductions.

2. Property Taxes

State and local governments collect property taxes, which can vary significantly. These taxes are deductible, and the exact rate can be found on your escrow summary or by consulting a tax professional. Rental licensing fees and occupancy taxes for short-term rentals are also deductible. Note that the IRS limits state and local income, sales, and property tax deductions to a combined $10,000 ($5,000 for married taxpayers filing separately).

3. Travel and Transportation Expenses

Transportation expenses for landlords who travel to multiple properties or live far from their rental can be deducted. This includes costs for showing the property, collecting rent, and property maintenance. You can use either actual expenses or the standard mileage rate (65.5 cents per mile for 2023) for deductions.

4. Real Estate Depreciation

Depreciation, or the decrease in value due to wear, tear, and obsolescence, is deductible. You can claim depreciation as soon as the property is available for rent, over a period of 27.5 years as per the IRS. Only the structure’s value, not the land’s, can be depreciated. Equipment and improvements that add value, adapt the use, or extend the property’s life are also deductible. Refer to IRS Publication 946 for guidance on depreciating property.

5. Maintenance and Repairs

While improvements are deductible through depreciation, certain repair and maintenance costs are separately deductible. These efforts keep the property in rentable condition but do not add significant value. Examples include additions, landscaping, heating and AC systems, plumbing, insulation, and interior upgrades. Labor costs for hired workers and rental fees for tools and equipment used for repairs are also deductible.

6. Utilities

If you cover utilities like gas, electricity, water, heating, AC, internet, cable, or satellite for your tenants, these expenses are deductible. Even if tenants reimburse you later, you can claim the reimbursement as income while continuing to deduct the expenses.

7. Legal and Professional Fees

Professional fees related to your rental property are deductible. This includes costs for a CPA or tax preparation software, legal fees for rental paperwork, real estate agent commissions, and advertising expenses. Legal fees for evictions and advisor services discussing the rental property are also deductible, but fees for defending the property title or recovering and improving the property are not.

8. Insurance Premiums

Insurance premiums, including basic homeowners insurance and special peril and liability insurance, are deductible. If you have employees, you can deduct the cost of their health and workers’ compensation insurance. Landlords can also deduct losses from events like hurricanes, earthquakes, floods, or theft.

9. Office Space

Whether you conduct business in a commercial property or a home office, the associated costs are deductible. This includes expenses for square footage, rent, and office equipment like printers and software. Maintain documentation of purchases and record time spent managing the rental property, as this is a commonly flagged deduction.

How to Claim Rental Property Tax Deductions

Generally, file rental property tax deductions the same year you incur the expenses using Schedule E. Keeping specific records of all income and expenses as they occur will simplify the process and provide proof for deductions in case of an audit. If you use the rental property as your primary residence at any point in the tax year, the filing process becomes more complex. Schedule E denotes the number of days for personal use and rental at fair market value. Personal use expenses or losses are typically not deductible on Schedule E but may be itemized on Schedule A.

Several expenses related to the operation of your rental property are deductible. These deductions can significantly reduce your tax bill, from maintenance costs to mortgage interest. The key is to maintain meticulous records of all operational activities to properly claim the right expenses and amounts at year-end.

The Real Estate Cycle

April 21, 2023

The real estate industry is known for being cyclical, with periods of boom and bust that can have a profound impact on the economy. One such cycle that has been observed and studied extensively is the 18.6-year Real Estate Cycle, also known as the Land Cycle or Property Cycel. This cycle is based on the observation that major peaks and troughs in the real estate market tend to occur roughly every 18 to 19 years. Understanding this cycle is crucial for investors, developers, and policymakers alike, as it can provide valuable insights into the direction of the market and help inform investment decisions.

Why is there a real estate cycle, and why does it repeat?

There are several factors that contribute to the real estate cycle, including economic, demographic, and policy-related factors. Economic factors, such as interest rates, inflation, and employment levels, can have a significant impact on the demand for housing and the overall health of the real estate market. Demographic factors, such as population growth, migration patterns, and changes in household composition, can also influence the demand for housing and the types of properties that are in demand. Finally, policy-related factors, such as zoning regulations, tax policies, and government incentives, can affect the supply and demand of housing and the overall health of the real estate market.

The real estate cycle is thought to repeat because of the interplay between supply and demand. During periods of economic growth and demographic expansion, demand for housing tends to increase, leading to a rise in prices and an increase in construction activity. However, as supply catches up to demand, prices begin to level off, and construction activity slows down. This eventually leads to an oversupply of housing, which, in turn, leads to a decline in prices and a decrease in construction activity. As prices bottom out and the oversupply is absorbed, the cycle starts anew with a period of economic growth and demographic expansion.

Stages of the Real Estate Cycle

Real Estate Cycle
The real estate cycle is typically divided into stages or phases: recovery, expansion, hyper-supply, and recession. Understanding these stages is crucial for investors and developers, as it can help inform investment decisions and risk management strategies.

1. Recovery Phase: This stage occurs immediately after a market downturn and is characterized by low prices and low levels of construction activity. Property prices have fallen enough to tempt investors to begin buying again, attracted by the high yields that are available from low home prices while rents remains healthy(rents remain strong because people always need a place to live). During this stage, investors and developers may begin to see opportunities to acquire properties at discounted prices, with the expectation of future price appreciation.

2. Expansion Phase: As the market recovers, demand for housing begins to increase, leading to rising prices and an increase in construction activity. During this stage, developers may begin to invest in new construction projects, with the expectation of future profits. Large companies and pension funds start buying up distressed portfolios. The prime assets will always be the most attractive, so this early growth tends to begin in the most popular real estate markets and expand from there.

3. Hyper-supply Phase: At some point, the increase in construction activity leads to an oversupply of housing, which can cause prices to level off or decline. During this stage, developers may face increased competition and a decrease in profitability, while investors may begin to look for opportunities to exit their positions. As the early movers take their profits there may be a slight mid-cycle dip.

4. Recession Phase: Eventually, the oversupply is absorbed, and the market begins to stabilize. However, if economic conditions deteriorate, it can lead to a recession, which can cause prices to decline sharply and lead to a decrease in construction activity. During this stage, investors and developers may face significant losses, and those who are over-leveraged may be forced to sell at a loss. Economist and author Fred Harrison used the term “winner’s curse” in his book “Boom Bust” to describe buyers that “won” by placing the highest bid for a property with multiple offers during this phase because the next recession isn’t far away, and it won’t be long before the asset they just purchased will be worth markedly less.

Previous real estate cycles in the United States

The United States has experienced several real estate cycles throughout its history, with some of the most notable cycles occurring in the 1920s, 1970s, and 2000s.

1. The 1920s: The 1920s saw a period of economic growth and demographic expansion, with the rise of the automobile and the growth of the middle class leading to an increase in demand for housing. This led to a period of expansion in the real estate market, with construction activity increasing and prices rising. However, this period of growth was not sustainable, and the market eventually experienced a major downturn in the late 1920s, which was exacerbated by the stock market crash of 1929. This led to a period of hyper-supply, with an oversupply of housing and a decrease in construction activity. The real estate market did not fully recover until after World War II.

2. The 1970s: The 1970s were marked by significant economic and demographic changes, including the oil crisis, inflation, and the rise of the baby boomer generation. These factors had a major impact on the real estate market, leading to a period of expansion in the early 1970s, followed by a period of hyper-supply in the mid to late 1970s. During this period, interest rates rose sharply, which led to a decline in demand for housing and a decrease in construction activity. The market did not fully recover until the early 1980s.

3. The 2000s: The 2000s saw a period of economic growth and demographic expansion, with the rise of the internet and the growth of the service sector leading to an increase in demand for housing. This led to a period of expansion in the early to mid-2000s, with construction activity increasing and prices rising rapidly. However, this period of growth was not sustainable, and the market eventually experienced a major downturn in the late 2000s, which was triggered by the subprime mortgage crisis. This led to a period of hyper-supply, with an oversupply of housing and a decrease in construction activity. The real estate market did not fully recover until several years later.

4. The real estate crash that occurred from 2006 to 2012, commonly referred to as the Great Recession, was one of the most significant downturns in the history of the U.S. real estate market. The crisis was triggered by a combination of factors, including loose lending standards, a housing bubble, and the proliferation of complex financial instruments that were poorly understood by investors and regulators alike.

Leading up to the crisis, housing prices had risen rapidly throughout the early 2000s, fueled by low interest rates, lax lending standards, and a speculative frenzy among investors. Many homeowners took on mortgages they could not afford, relying on the assumption that housing prices would continue to rise indefinitely. However, in 2006, the housing market began to cool off, and prices began to decline. This led to a wave of defaults and foreclosures, as homeowners found themselves unable to keep up with their mortgage payments.

At the same time, a variety of complex financial instruments had emerged that were tied to the value of housing, including mortgage-backed securities and collateralized debt obligations. These instruments were sold to investors around the world, who assumed that the underlying mortgages were sound and that the value of the securities would continue to rise. However, as the housing market began to collapse, the value of these securities plummeted, causing widespread losses and a crisis of confidence in the financial system.

The fallout from the Great Recession was severe, with millions of Americans losing their homes, and the U.S. economy entering a deep recession that lasted for several years. The crisis also had a significant impact on the real estate market, with housing prices falling by as much as 30% or more in some areas, and construction activity grinding to a halt. It took several years for the market to recover, with the government implementing a variety of policies and stimulus measures to help stabilize the economy and support the housing market.

The Great Recession serves as a stark reminder of the dangers of speculative bubbles and the importance of responsible lending practices. While the real estate market has since recovered, the scars of the crisis continue to be felt by many Americans, and the lessons learned from the experience will undoubtedly shape the way we think about real estate investing and financial regulation for many years to come.

In each of these cycles, home prices experienced significant changes. For example, during the 1920s cycle, home prices increased by roughly 60% between 1920 and 1929, before declining by roughly 30% between 1929 and 1933. Similarly, during the 2000s cycle, home prices increased by roughly 90% between 2000 and 2006, before declining by roughly 30% between 2006 and 2012.

Bozeman Real Estate Cycle

Bozeman, Montana, like many other regions, experiences a real estate cycle characterized by periods of growth and decline. Bozeman has experienced steady population growth in recent years, leading to increased demand for housing and a rise in real estate prices. The Bozeman area is known for its natural beauty, outdoor recreational opportunities, and a vibrant economy anchored by Montana State University.

The most recent Bozeman Real Estate Cycle began around 2010, following the Great Recession, with prices gradually recovering and then surging in the mid-2010s. By 2018, the market had become extremely competitive, with many buyers struggling to find affordable housing. However, by 2020, the market had begun to cool off, with prices stabilizing and demand decreasing somewhat.

Conclusion

The 18.6-year Real Estate Cycle, also known as the Land Cycle or Property Cycle, is a well-documented phenomenon that has been observed throughout history. While the causes of the cycle are complex and multifaceted, the interplay between supply and demand is a key driver. By understanding the stages of the cycle and the factors that contribute to it, investors, developers, and policymakers can make informed decisions and better manage risk. While past performance is not indicative of future results, studying the previous cycles can provide valuable insights into the direction of the real estate market and help inform investment decisions.

, , , , , , , ,

State Population Change in 2022

April 5, 2023

In the United States, population migration trends have undergone significant changes in recent years, with many people moving from one state to another.

One of the most significant factors driving population migration in the United States is taxes. Americans moved from high-tax states to low-tax states in 2022 according to data from U.S. Census Bureau, U-Haul, and United Van Lines.

The search for economic opportunities also contributed to population migration. Many people move from states with high unemployment rates to states with better job prospects. For example, the recent economic boom in Texas has led to an influx of people from other states, seeking employment opportunities in the state.

Another factor driving population migration is the desire for a better quality of life. Many people move to states with better weather, lower crime rates, and better access to education and healthcare. Montana and Idaho are known for their stunning natural beauty and offer a high quality of life along with a low cost of living. The states have a relatively low population density, which makes them attractive to people who prefer a more laid-back lifestyle. Many people move to these states to enjoy outdoor recreational activities such as hiking, skiing, and fishing.

The COVID-19 pandemic has also had an impact on population migration trends in the United States. The pandemic has led to an increase in remote work, allowing people to work from anywhere. As a result, many people have moved from expensive cities like New York and San Francisco to more affordable locations with a lower cost of living.

State Population Change 2022

States with the largest decreases in population were:

New York -0.9%
Illinois -0.8%
Louisiana -0.8%
West Virginia -0.6%
Hawaii -0.5%
Oregon -0.4%
California -0.3%
Pennsylvania -0.3%
Mississippi -0.3%
Rhode Island -0.3%




States with the largest increases in population were:

Florida +1.9%
Idaho +1.8%
South Carolina +1.7%
Texas +1.6%
Montana +1.5%
South Dakota +1.5%
Delaware +1.4%
Arizona +1.3%
North Carolina +1.3%
Utah +1.2%

Real Estate Market Information

April 4, 2023

Real Estate is the largest asset class in the world. The Global Real Estate market is estimated to be $217 trillion. To compare that to some other asset classes consider that the global equity market capitalization is valued at $70.1 trillion. The global bond market is valued at $92.2 trillion. Global real estate is a more valuable asset class than all the stocks, shares, and bond markets combined.

The residential real estate market in the United States is valued at $33.6 trillion. To place that in perspective, that number is equal to the combined annual GDP of the U.S. and China, the world’s two largest economies.

There is 3,531,837 square miles of land in the United States. There are approximately 140 million housing units in the United States. The number of homes sold each year in the United States is approximately 6 million. The median price for homes sold in the U.S. in Q1 2023 is approximately $330,000. Homeownership stands at 68 percent, the highest rate since 2008.

There are 2 million real estate agents in the United State with active licensees. 1.4 million of those agents(~70%) are members of the National Association of Realtors. The U.S. has approximately 80,000 real estate brokerages.

Big Sky Country MLS Information

Montana is the fourth largest state in the United States, with 56 counties spread across an area of 147,040 square miles. Big Sky Country MLS(BSCMLS) primarily covers Gallatin County, Park County, and Madison County. Silver Bow County was recently added to the counties that are served by BSCMLS.

Gallatin County, Montana is approximately 2,605 square miles (6,750 square kilometers). According to the United States Census Bureau, as of the most recent data available in 2020, the estimated population of Gallatin County, Montana is approximately 116,896 with 55,919 housing units.

Park County, Montana is approximately 2,791 square miles (7,227 square kilometers). According to the United States Census Bureau, as of the most recent data available in 2020, the estimated population of Park County, Montana is approximately 16,668 with 9,751 housing units.

Madison County, Montana is approximately 3,891 square miles (10,062 square kilometers). According to the United States Census Bureau, as of the most recent data available in 2020, the estimated population of Madison County, Montana is approximately 8,218 with 6,202 housing units.

Silver Bow County, Montana is approximately 718 square miles (1,859 square kilometers). According to the United States Census Bureau, as of the most recent data available in 2020, the estimated population of Silver Bow County, Montana is approximately 36,407 with 17,530 housing units.

$8.872 Billion in real estate was sold in 2021 by 1,201 real estate agents in the market served by BSCMLS. $6.448 Billion worth of residential real estate was sold in 2021. $668,346 was the average residential real estate transaction in 2021.

2021 Residential Sales by City

City Sales Volume 2021
Bozeman $2,537,282,941
Big Sky $1,212,317,216
Belgrage $640,768,972
Livingston $343,285,136
Butte $301,018,515

Investment Real Estate

February 9, 2023

Investment real estate refers to the purchase of real property with the intention of generating income and capital appreciation. Real estate has been a popular form of investment for centuries, offering diversification and a hedge against inflation. In this article, we will discuss the different types of investment real estate and explain why it is a popular choice for investors.

Types of Investment Real Estate

  • Residential Real Estate: This type of investment real estate involves purchasing single-family homes, condominiums, or apartments that can be rented out to tenants. Residential real estate is a popular choice for investors who are looking for a steady income stream.
  • Commercial Real Estate: Commercial real estate includes office buildings, retail centers, industrial parks, and other income-producing properties that are used for business purposes. This type of investment real estate is more complex than residential real estate and requires more expertise, but can offer higher returns.
  • Raw Land: Raw land refers to undeveloped land that can be used for agricultural or residential purposes. This type of investment real estate is often viewed as a long-term investment and is a good option for investors who are looking to diversify their portfolio.
  • REITs (Real Estate Investment Trusts): REITs are companies that own, manage, and finance income-producing real estate. They allow investors to invest in a diversified portfolio of real estate assets without having to directly own the properties. REITs are a popular choice for investors who want to invest in real estate without the hassle of managing properties.

Why Investment Real Estate is Popular

Diversification: Real estate is an asset class that is uncorrelated with traditional stock and bond investments, making it a good option for diversifying a portfolio. By including real estate in a portfolio, investors can reduce the overall risk of their investments and potentially improve their returns.
Inflation Hedge: Real estate is a good hedge against inflation because it typically appreciates in value over time. As the cost of goods and services increases, the value of real estate also increases, offering investors protection against the eroding power of inflation.
Income Generation: Investment real estate can provide a steady income stream in the form of rental income. This can be especially attractive for investors who are looking for a passive source of income.
Capital Appreciation: Real estate has the potential to appreciate in value over time, offering investors the potential for capital gains when they sell the property.

Investment Real Estate Classifications

Investment Real Estate Classifications are used to describe the quality and condition of investment real estate properties. Here’s a brief description of each classification:

  • Class A: Class A properties are considered the highest quality properties in terms of their location, age, appearance, and finishes. They are typically well-maintained and have a strong reputation in the local market. Class A properties are usually newer and have modern amenities and are often occupied by high-credit tenants.
  • Class B: Class B properties are considered to be of a lower quality than Class A properties but still offer good value for investment. They may be older, have outdated finishes and amenities, and be located in less desirable areas. Class B properties are often occupied by medium-credit tenants and may require some renovations or upgrades to improve their value.
  • Class C: Class C properties are considered the lowest quality properties in terms of their condition and location. They are often older, poorly maintained, and located in less desirable areas. Class C properties may require significant renovations and upgrades to improve their value and attract tenants.
  • Class D: Class D properties are the lowest-quality properties and typically have a high vacancy rate, low rental income, and are located in economically distressed areas. These properties may require extensive renovations and upgrades and are often considered to be at a high risk for investment.

It’s important to note that these classifications can vary by region and market and may not always be clearly defined. However, they are commonly used as a guide to help investors make informed investment decisions in commercial real estate.

In conclusion, investment real estate is a popular choice for investors due to its potential for diversification, income generation, capital appreciation, and as a hedge against inflation. Whether you’re looking for a long-term investment or a steady source of passive income, investment real estate can be a valuable addition to your portfolio.