It’s never too early to make sure you have everything in order for tax time! When you own investment properties in Kona, tax preparation is a year-round activity.
As you get closer to the annual April deadline for filing taxes for your property investment portfolio, it’s critical to know what you can deduct and how your expert Kona property management company can help you prepare.
Owning investment properties is an excellent tax benefit—but you need to know what you can (and can’t) deduct to avoid penalties from the IRS. You also don’t want to pay more money than you need to!
Here’s what property owners need to know about the taxes they face on their Kona properties when growing your wealth.
Don’t Miss These Deductions!
Maximizing your rental property deductions is a significant part of having a profitable real estate portfolio. As you go through the year, keep track of expenses that qualify as a deduction.
Repairs and Maintenance
When your investment properties in Kona need repairs—or when performing maintenance to keep a property in excellent condition—you can deduct those expenses. However, it is critical to understand the distinction between necessary and ordinary repairs versus improvements made to your Kona property.
- Repairs are a key component of any Make-Ready Process and incorporate anything that the property needs to provide a habitable living situation for your tenants. Refinishing floors, painting walls, fixing the roof, or replacing the smoke detectors can be considered necessary repairs that property investors can deduct when it’s tax time.
- Improvements aren’t necessary for your tenants to live comfortably and safely in your property. Adding a deck, renovating the bathroom, or installing new windows (assuming one isn’t broken) throughout the house are improvements.
“Improvement maintenance” can enhance your property’s appeal and make it easier to increase how much you charge for the rent. However, you cannot deduct these expenses when it’s time to file your taxes.
New Appliances and Depreciation
When you replace the appliances in your investment properties, they become a tax deduction!
- Be careful how you calculate your appliance deductions.
- These items fall under a depreciation model for your taxes.
- You’ll deduct a portion of the cost of replacing your appliances each year throughout the useful life of the appliance.
This method applies to the value of your investment properties, too: instead of deducting the full value of the property in the year that you purchase it, the value becomes a depreciated deduction over the years that you use it as a rental property.
Using depreciation for deductable items can get tricky! Be sure to consult a tax professional as you work through the items and amounts to deduct for your annual investment property taxes.
Interest and Insurance
- You can deduct the interest you pay on the mortgages for your investment properties.
- Make sure you calculate the interest paid only during the current tax year—not the full amount of interest over the term of the loan.
- Landlord liability insurance, homeowners insurance, and any rental property insurance specific to the location of your Kona property can also be a tax deduction.
To make sure you deduct only the appropriate types of insurance, consult a tax professional.
Your Home Office and Travel
Do you have a space set aside in your home as your investment property office? Be sure you deduct the expenses related to that portion of your home on your taxes! This includes a part of your utilities and private home mortgage.
You can also deduct property-related travel—as long as the mileage or airfare pertains to business with your investment properties. If you travel to Kona from the mainland to inspect your properties and meet with those providing your Kona property management services, you can deduct expenses related to the business portions of that trip!
The fees that you pay to the professionals that partner with you for the management of your investment properties can be a tax deduction. Legal counsel, tax consultants, and your expert Kona property management services can be valuable deductions at tax time.
Follow the Rules to Avoid Penalties!
Owning Kona investment properties comes with plenty of rules. Long-term and short-term rentals in Hawaii are subject to unique taxation in the form of the GET and TAT tax, so it always helps to be educated in advance on what’s due for your rentals.
Not only do you need to follow the laws when keeping track of expenses and income your rental business taxes, but it’s also critical for landlords to follow island-specific regulations for rental properties!
- Your short-term and long-term real estate investment portfolio properties are subject to the new Hawaii laws about operating vacation rental homes.
- The crackdowns on unlicensed vacation rentals in the Kona area has led many investors to move away from short-term rentals and towards the stability of a long-term property.
- Local authorities are beginning to assess fines for violating these new laws. Working with Kona property management keeps you aware of shifting legislation on the Big Island!
Take Advantage of Property Management Benefits
Your tax consultant and your property management team can help advise you about the best deductions for your investment properties on the Big Island! If you’re also struggling with any short-term rentals and the new laws, Hawaiian Dream Properties can help you transition a short-term Kona rental into a long-term investment property.
The tax benefits of a long-term rental property are excellent! However, it’s tough to utilize them property without the right property management professional in Kona. A great place to start finding a property manager on the Big Island to fit your needs is with our free guide!
With insider tips from Hawaiian Dream Properties, it’s never been easier to help you find the right property management fit for your investment portfolio. Don’t risk your dream in the wrong hands—download your copy today!