As a successful business, you’ve always counted on Small Business Resources to help you grow your business. In fact, you recently parlayed some earnings into a small rental and discovered that the IRS came out with a new ruling that’s favorable to a mom-and-pop rental owner like yourself.
Before the IRS gave us their 1986 ruling limiting passive losses, many rental investors questioned the viability of owning a rental if they couldn’t use it to reduce their taxes.
But, the IRS seemingly gave a nod to the small rental investor with its January 1, 2014 ruling. It can save landlords up to $3,500 in yearly taxes by allowing immediate expense of improvements, repairs and maintenance expenses.
The old way: IRC Section 263(a)…
The old laws required property owners to capitalize a bunch of expenses that were considered property improvements. In other words, filers had to apply a ‘useful life’ to the item and amortize the expense over the duration.
The old way: IRC section 162(a)…
Ideally, landlords can take a full expense deduction for the year it was incurred, as long as it was considered to be necessary for conducting business: ordinary an necessary expenses, it’s called.
Today, investors can opt for what’s called the Repair Allowance method, which reflects a ratified simplification of the IRS ruling.
Consequently, all improvement, repair and maintenance expenses can be taken; this, versus being forced to capitalize an expense up to 30 years.
“And the limit is…”
It’s one of those lesser-than calculations, where it’s the lesser of ten-grand…or 2% of the un-adjusted cost of your property. Check out the Federal Register posting on this topic.
As you continue to grow your business, and are looking to fill your latest job openings, contact us.