Morris Invest: Rental Property Tax Deductions


You know, my accountant likes
to say, if you are paying taxes and you’re a real
estate investor, then chances are you’re
doing something wrong. Today’s video,
we’re going to dive into the top tax deductions
for real estate investors. Hey there, everyone. I’m Clayton Morris. I’m the founder and
president of Morris Invest. We’re a turn key
real estate provider. I’ve rehabbed hundreds of homes
and I’m a longtime real estate investor. And one of the great benefits
of real estate investing, of course, is the tax benefits. Again, my accountant, one
of the greatest accountants in the country for
real estate, has said, if you’re a real
estate investor, you should not be paying taxes. You should be able to basically
not pay anything in taxes if you’re a real
estate investor. So the problem is
that many people don’t know or fail to take
advantage of all the great tax benefits of being a landlord. So if you own rental
properties or you’re thinking about buying rental
properties and getting started, there are some
great depreciation, there are some great benefits
that you need to know about in order to save on your taxes. OK, let’s dive into it. So we’re going to go through
10 of the top deductions that you can take if you’ve
got rental real estate. Now I want to be very clear. It’s very important that you
work with a tax accountant that understands real estate. If they don’t
understand real estate and you are building up
your rental portfolio, chances are, you need to
find a better accountant. OK? Because again, you should not
be paying anything in taxes if you are a real
estate investor. There are so many great ways
to leverage your properties. So you’ve got income
coming in from rent? Great. Are you then also
making repairs? Are you buying
additional properties? All of those things
will offset the income that you have coming in. And maybe you have a salary
job, your normal 9 to 5 job. Great. Are you buying rental
properties in an LLC, and therefore
offsetting the money that you have coming in
from your 9 to 5 job. These are all ways that you
can mitigate your overall tax burden. Remember, the tax
code in this country, in the United States
of America, was written for entrepreneurship. It is incentivizing you
to invest in the economy and to be an entrepreneur. Almost the entire tax code
talks about all of the things you can claim. There’s a very minimal amount
of things in the tax code where you actually get charged. So it really does
benefit you to take advantage of the tax code
the way that it was written. Remember, almost every member
of Congress owns real estate. Why? Well, because they
help write the laws. They know that owning real
estate crushes your taxes. OK, let’s dive into it. The top 10 things that you
can claim on your taxes for benefits. All right, the
first thing, and one of the most important
deductions that you can claim as a landlord is interest. So number one, interest. Now this can be interest
on mortgages, loans, home equity, lines of credit. If you are using financing
to acquire properties, interest loans is a write off. This is something that you
can claim against the income that you’re bringing
in from your tenants on your properties. So number one, interest. Number two on the
list is depreciation. I’m sure you’ve heard
about depreciation. It is simply the ability for
you to say that this asset that you own, this
house, over 27.5 years, I’m able to say
that this asset is depreciating because a tenant
is living in the property. So the IRS lets you
depreciate this asset, which means you get to
depreciate a chunk of that cost on your taxes
every year for 27.5 years. That’s an incredible
deduction that you should be taking advantage of. The beauty is that just
because a tenant is living in there doesn’t mean the
asset is actually worth less. No, of course not. Actually, real estate
tends to appreciate. So you get to claim depreciation
while your asset is probably appreciating. Another killer
strategy from the IRS. Number three on your
list is repairs. Now of course, all of the rental
properties that I buy we’re doing a repair on. So I’m doing all
of the construction on these properties, and
those are a write off. That repairs are deductible
on your taxes in the year that you did the repairs. So in 2018, 2017,
if you have to put a new roof on your rental
property, boom, tax deduction. Brilliant. You get to write
that off in the year that you did those repairs. So repairs help
offset any income that you have coming in because
you’re improving the asset. You’re improving
the neighborhood by improving your
rental property. Number four on the
list, local travel. I very often will fly
into my rental markets, or I’ll drive and
rent a car, mileage. All of those things
are a tax deduction. So let’s say you owned
rental properties in your own backyard. Then any time you
get in the car, have to drive down to
the property, you keep track of all
of that mileage. You keep track of
the automobile. Maybe you even own a business. So you own an LLC, you own the
rental properties in the LLC. And you have a car that is
specifically geared just to running the business. You have to run back and
forth between your properties. You can claim part
of that vehicle as a business expense
on your taxes. So local travel, keeping
track of your mileage, keeping track of
all of those things. Incredibly important,
and again, a great write off if you own
rental properties. Number five, long
distance travel. OK, so forget properties
being in your backyard. I live in New Jersey. There’s no way I would
ever buy rental properties in my backyard because as we
say in other videos here– we have videos here on ROI–
the ROI is just too low. I want to go into the Midwest
and parts of this country where I can get a
massive bang for my buck. Well, I’ll fly out to
my different markets a couple of times a year. And all of that
travel, of course, is, you guessed it, a write off. So my airfare, my hotel,
my rental car, my dinners, my meetings with my team,
all of those things. And the same goes
for you as well. If you’re making a
flight into an area to see one of your
rental properties, that’s all a write off. Number six on the
list is a home office. Now I run my business
from my home. I’ve got a door on the office
and a closet in my office, and therefore, I get to claim
my home office as a business expense. A portion of your home. So that means my printer,
my computer, all of that is a business expense. Now you as a landlord can
also claim part of your home, especially if you have an office
set up, as a business expense. Now you’ll want to check
with your accountant to make sure you’re
doing it right. But typically, you need to
have a door on that room, and it has to be used
just for an office. Like, it can’t be a bedroom
with a desk and a computer because you’re
sleeping in that room. That doesn’t count. So as long as it’s
designated as a home office and you’re using it as
your business office to be a landlord, and to
manage your spreadsheets, and to check your rental
income and all of those things, then you can deduct a portion
of that on your taxes. Again, check with
your accountant on how that all breaks down. But for me as a business owner,
my office, I use it every day. I’m at my computer,
on the phone nonstop. So it absolutely is an office. I don’t also sleep there. I guess sometimes I maybe
sleep in my arm chair that I’ve got in there. Get a little nap in
in the afternoon. Does that count? I don’t know. I’ll find out. I’ll ask my accountant. All right, number
seven on that list is employees that
you get to deduct. So if you’re hiring
contractors or if you have people on staff– like
we don’t subcontract out anything on my company,
we have people on staff, employees that we pay. And also, we then
work with contractors. And you may work
with contractors to fix your roof, to
fix windows, et cetera. And all of those pieces
are part of this puzzle. You can claim their
wages on your taxes. That is an expense. That’s a business expense. That is a write off. So again, you’re helping
the broader economy here. This is why the tax code
was written this way, right? You’re hiring people. You’re improving a neighborhood. So that’s why Congress
wants to incentivize you to take these advantages. You can write these
things off on your taxes. Do not forget to do that. Number eight– and
this is something we don’t want to have to talk
about, but casualty losses. That is number eight on
the list, casualty losses. What does that mean? Well, your rental house
is involved in a flood. If there is a fire. You can actually write
a portion of that off on your taxes as a loss. So casualty loss. Fire insurance, yes,
it will cover it. But they’ll give you some room
to breathe here with the IRS to be able to write
that off on your taxes. So don’t forget to write off
casualty losses on your taxes. Number nine on the
list is insurance. Now on every rental property I
own, I have rental insurance. I have insurance
on the properties. So any insurance you carry for
your contractors or anything, you get to write off the
premiums on your taxes at the end of the year. Again, that is a
business expense. So any insurance
you’re carrying, that is a write
off on your taxes. Do not forget that. People build in insurance
into their expenses when they’re buying
a rental property, and they’re thinking
about how that affects their cash on cash return. But remember that the insurance
that you’re paying for is a write off at
the end of the year. So make sure you check
with your account and make sure you’re
writing off insurance at the end of the year. And number 10 on
the list is paying for professional
or legal services. Any fee that you’re paying to
a property management company or a lawyer is a write off. That’s a business expense. So think any work that needs
to be done by your property management team. Maybe the lease up fee that
they’re going to charge you, $150 to do background checks
on the tenant before they put them in the property. Boom, that’s a write off. They have to run out and do
some work on the property. Boom, that’s a write off. You hire a lawyer to
draft up a contract. That is a write off. All of those things
round out one of the many reasons
why real estate investing is such a killer
way to save on your taxes. Again, I hope you enjoyed
this list of 10 great ways to save on your taxes. We have other great videos
here on the channel. We talked about finding
out how to nail down ROI. If you want to buy
rental properties and have them done for
you, totally turnkey, we have a whole
playlist right here devoted to turn key
real estate investing. We have a DIY playlist as well. So if you want to get your
hands dirty and get in there and do the plumbing and
hang drywall yourself, you can watch those videos. But most importantly,
please subscribe. Right there, that little button
and subscribe to our channel. We publish videos
multiple times a week. And we’ll be back here
with another video. My goal is for you
to get out there and take action and become
a real estate investor. We’ll see you next
time, everyone.

100 thoughts on “Morris Invest: Rental Property Tax Deductions

  • Just a reminder that it makes sense to depreciate the max amount if you're holding and renting property but you'll get hit harder if you're flipping.

  • Hello. Im about to retire from law enforcement and we're moving to daytona beach shortly and plan to invest in a few duplexes for income. Im clear on the tax deductions and benefits but how are we paid. Does your company that owns your llcs pay you and your wife a weekly salary and how do you figure what is a decent salary. Thanks for any assistance. Fyi fox and friends is my favorite show lol

  • Hi Clayton, I love you and Natali. You're video serious have been awesome and super helpful and encouraging. I already own a rental property in my own name. Can I form an LLC and transfer this property into the LLC or would I have to liquidate it and purchase a new property to do that? Thanks so much! 👍

  • I wish he could recommend his accountant to me. I need to put a team of quality professionals together looking to begin down a real estate investment path. I am in NJ too.

  • Can I write off these expense if I don't have a LLC. I have 2 homes that I rent out in another state. It's not far to drive and it's by my mother home. I was wondering can the travel , repairs and using my parents home as a office cane be written off. First year doing this.

  • I was wondering how deductions apply to purchasing a new property. From what I understand, you can’t deduct start up costs. Is this correct? If so, if the previous tenant is in the house after you close, and move out after a few days, are you then able to write off start up costs? I’ve also read where a loophole is to list the property for rent day one, even though it’s not ready to be rented.

  • Thanks for the great video Clayton, question: I'm in the process of purchasing my first rental property, do all these tax write-offs apply only if you have an LLC or can I write off taxes if the property is under my name?

  • Hey bud, so Im looking to hire a CPA to handle my ten properties in texas. I was wondering if I should just hire someone in my home town if they arnt necessarily specialized in real estate? Or should I seek a better CPA that may be far away? I always thought it would be best to be face to face with people. Any advice helps.

  • income tax is written for entrepreneurship, hahaha….it would be 0, if that was the case, it's essentially forced entrepreneurship

  • What about property appraisals and inspections? For example – this past year I paid for 2 property appraisals and inspections and DIDN'T buy the property because the deal fell through. However, I still incurred the expense. Are these tax deductible?

  • I was just listening to the Rich Dad Poor Dad podcast on depreciation and searched on youtube for more elaboration and it was Morris invest who they were speaking too…. so wow small world. Thanks for the valuable video!

  • Does this still apply after trumps tax escapade? I own one rental property as of now. trying to buy another primary home, currently renting. IM considering starting an LLC next week in SC, rental property is in VA BEACH.

  • Would you recommend purchasing Turbo Tax audit protection, it's $60 and claims to represent you if you get audited? I have 3 rentals valued at 600k total and have losses on all the properties, lowering my taxable income substantially.

  • Do you have an opinion on mobile home rental investments and stick built homes?
    I just recently started with my own rentals but my dad has a large mobile home park with 100 lots and 42 homes are his And the ROI is really really good.

    The reason I ask is because I know that mobile home value drops very quickly but at this point it doesn't concern me because the ROI is so high and I have worked with my dad on buying and selling mobile homes and my repair costs are extremely low.

    But I am looking into investing on more rental homes And would like to know your opinion.

    After Deducting for 40% From my gross income for taxes repairs and God knows what, My ROI is 49% on one home and 48.5% on the other.
    And both homes are debt free at this point. I paid $8,000 on one and $9,000 on the other and one brings in $600 and the other is $550 per month.

    But when it comes to re-investing the only downside I have run into is that the mobile homes can only offer me a laughable amount of collateral.

    If it were stick built I could use the homes as collateral to keep re investing and having higher value assets in the long run. But the ROI on stick built homes is very low compared to Mobile homes.

    Would you keep buying cheaper mobile homes with high ROI's or would you mix stick built homes into that portfolio to have appreciating assets like stick built homes?

  • Incorrect information! For example: a new roof is NOT a repair and therefore NOT deductible. .
    A new roof is an improvement (Morris even used the word "improve" when referring to the roof. (around the 4 minute mark) Long distance travel to visit your properties, you canNOT deduct meals 100%. Meals are only 50% deductible. Travel in your car to your rental properties: you can NOT claim both mileage and gas expenses.

  • The mileage credit is ridiculous! For example, I know people who use a service to accept rent and of course there's a fee. I have 3 local properties so I can drive, pick up the rent, and stop in the place I was undoubtedly going to drive to anyway for lunch because it's on the way. Now instead of paying a service 2% or 3% I get all of the money, an opportunity to visually inspect the property (last time on one I realized I need to clean the gutters), and the drive itself becomes a profitable trip at tax time.

  • Slightly off topic but can you do a video on buying real estate with high property tax rates or do you just avoid them altogether?

  • So if you can write off insurance and property management expenses does that mean you don’t have to factor those into your roi at all?

  • Extremely valuable information. Would you care to share a preferred accountant? His or her location doesn’t matter if they are worth it and knows the business they can have my business. Thank you again for all of the informative videos!

  • i live in kansas city and there are some nice looking duplees for 110-140k that look very nice in a suburban area, i dont have much money to put down but i could do a first time home buyer right? I have good credit etc, how much do you think I should save up before buying/looking for one? Live in one rent out one

  • Do these deductibles work if you're not active with your rental property? Can I apply these if I'm passive such as just hiring property management to do all the work?

  • I wasn't expecting this much of tax deductions . Now I wonder , if India is opting this much of benefits for its investors.

  • You did not cover one more point . If I earn money from rental on my condo after my expenses insurance and everything else comes out can I take every penny of what’s left And pay straight towards the mortgage to paying the rental condo off. And just write on my taxes for the end of the year that I didn’t have anything to pay taxes with because everything I had left went to expenses and paying the mortgage on my condo ????

  • Jesus against money and taxes. He called Mathew a tax collector from his job. Jesus wants us to use ask and receive world wide. Lucifer invented money.

  • Are these write-offs only possible if you have your properties under a legal business entity, or can you make these write-offs as an individual as well?

  • So I just bought my second home , but had to make it my primary resistant due to my finances. And will live in the property of course for at least the first year.
    However I have two renters lined up, to off set the mortgage.

    Should I still create a LLC and treat the property part that I rent as a rental property,
    or lets say can I ?

    Awesome videos btw

  • I can't get over people disliking videos like this. Its useful to you great, if not go watch something else… but 43 people felt the need to dislike this video. Very lame!

  • Just started renting. Your video is extremely helpful. Concise and to the point. I like that. Keep it up, you're doing a great job!

  • Replacing a roof is not an expense, it is an improvement that extends the life of the property and a s such must be depreciated of 27.5 years and not expensed in one year. A small portion of the roof can be repaired and be claimed as an expense. Ithe IRS ruling is that if any work restores the property or extends the usefull life of the building, it must be depreciated not expensed. Meals can only be expensed up to 50%

  • Casual losses far into a somewhat nebulous category. The IRS allows a casualty loss to go to the lowering of the cost basis of the property rather than a straight deduction so that when you see the property there is less of a taxable gain. Some casualty losses are allowable but this is a nuanced area. Claiming a home office is also nuanced in that it reduces the amount of property taxes on your own home that you can deduct.

  • Can I as an investor of a rental property write off expenses for initial rehab of a house and the contractor’s work on the house? Your videos have been extremely inspiring and informative. Hope to get out of the rat race soon.

  • Hello, does this apply if you are renting rooms in the house that you live in? Or is that different? Thank you!

  • But if you don't pay tax now. You will need to pay later when you sell the house. When you sell the house we are required to pay back the deduction portion taken before…

    We pay either now or later on.

    Which way is better. If one is selling the house in 2 years?

    By paying later on we have more cash flow.

  • If I have a property that Im barely clearing the mortgage and havent done much in repairs so far, should I file my taxes with the rental property, or just skip this, low key 🙂

  • Here is an great example I found on Nolo:

    Viola bought a small apartment building and sold it six years later for $300,000. Her starting basis was $200,000. During the time she owned the property she took $43,000 in depreciation deductions and paid $13,000 for a new roof (an improvement). Her depreciation deductions reduced the property's basis, but the roof improvement increased it. Her basis at the time of the sale is $170,000. Viola calculates her taxable gain on the property by subtracting her adjusted basis from the sales price: $300,000 – $170,000 = $130,000.

    As you can see, when you sell your property, you effectively give back the depreciation deductions you took on it. Since they reduce your adjusted basis, they increase your taxable gain. Thus, Viola’s taxable gain was increased by the $43,000 in depreciation deductions she took. The amount of your gain attributable to the depreciation deductions you took in prior years is taxed at a single 25% rate. Viola, for example, would have to pay a 25% tax on the $43,000 in depreciation deductions she received. The remaining gain on the sale is taxed at capital gains rates (usually 15%, 20% for taxpayers in the top tax bracket).

    So basically there is no benefit to depreciate property. Uncle Sam will get you either now or later. If you leave all the property to your heir, they will be burden to heavy tax later on, that they might as well not take it.

    I do not see the benefit or anyway that you can just hold the property forever. Eventually everyone will die, all asset will need be transfer to someone else. That someone will be burden to all the tax, unless the successor just donate all to charity like my uncle did.

  • Your accountant is correct… Below is an great example I found:

    The basis of property you inherit is usually the property’s fair market value at the time the owner died. Thus, if you hold on to your rental property until death, your heirs will be able to resell it and pay little or no tax—the ultimate tax loophole.

    Example: Victoria inherits her deceased parents' home. The property’s fair market value (excluding the land) is $300,000 at the time of her uncle’s death. This is Victoria’s basis. She sells the property for $310,000. Her total taxable profit on the sale is only $10,000 (her profit is the sales price minus the home's tax basis).

    The basis of a home or other property you receive as a gift is its adjusted basis in the hands of the gift giver when the gift was made.

  • What if an investor has no one to pass their real estate property to? What would be the best course of action to benefit from the real estate asset saving?

  • Cheers for this, I been tryin to find out about "passive income investor" for a while now, and I think this has helped. Have you heard people talk about – Qonmily Passive Formality – (do a search on google ) ? Ive heard some super things about it and my co-worker got great results with it.

  • In most cases a new roof on a property would likely have to be depreciated over time and could not be deducted all in one year.

  • Disagree that replacing the roof is a ‘repair’. That is a capital expense. This could have changed since the video was made.

  • Great video. Thank you. Will you please forward the name of “a great real estate tax accountant”?

  • I'm going to take a class on preparing taxes, and there are about 6 levels to achieve to be a professional tax consultant. This really is an eye-opener for me. Thank you 😊 so much?

  • A write off is still money spent.

    Yes it lowers taxable income but it’s still money spent!

    I’m currently trying to decided on whether to do real estate investing with properties vs REITs.

    Any advice?

  • Hey Clayton, for depreciation, do we simply divide purchase price by 27.5? Or is it current market value each year?

  • Thanks for de-mystifying the idea of "no taxes on investment property. " Robert Kiyosaki makes it all sound like the world is brainwashed and miss educated.

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