IRS Safe Harbors to Remember This Tax Season

January is here and it’s time to start gearing up to do your civic duty and pay your taxes. Although most commercial owners are able to pay their taxes annually with no problems, there’s never a reason to miss out on saving money where possible.

There are several IRS safe harbors and deductions that property owners should be aware of while filing their tax returns. Here’s a look at the most common deduction possibilities and how you can take advantage of them as a commercial property owner.

De Minimis Safe Harbor

The De Minimis Safe Harbor allows landlords to earn deductions on maintenance and repair invoices that don’t exceed $2,500. A qualifying invoice must be itemized in order to ensure that there is no abuse of this safe harbor.

To sum up the safe harbor, the total itemization must be $2,500 or less and cannot be split up from a larger total invoice.

Routine Maintenance

Every commercial property owner that rents their property out as a landlord is responsible for routine maintenance that includes:

  • Property inspections
  • Cleaning
  • Testing units throughout the building
  • Part replacement on property appliances

While in the past property maintenance and inspections were always something owners could deduct, the 2013 safe harbor’s addition of parts replacements gives this aspect of commercial property ownership an extra boost in deductions that taxpayers deserve.

Safe Harbor for Small Taxpayers

The IRS enacted the Safe Harbor for Small Taxpayers in 2013. In accordance with this safe harbor, when a landlord that rents out a commercial property pays for annual expenses like maintenance, repairs, and improvements on a property, they may be eligible for a tax deduction.

As long as a landlord doesn’t exceed the following limitations of the safe harbor, they are able to deduct on their Schedule E annual expenses:

  • Landlords cannot have made more than $10MM in the three preceding tax years
  • Annual expenses on deductible repairs and maintenance do not exceed $10,000

Owners must keep in mind that the Safe Harbor for Small Taxpayers and the routine maintenance deduction meld together and all fall under the same monetary restrictions.

Pass-Through Tax Deduction

As a landlord that is using their property ownership as a business, you could qualify for the Pass-Through tax deduction. If you meet the following criteria, you could be eligible to deduct 20 percent of your net rental income from your income taxes:

  • You own the rental property as personal property
  • You own the property through an LLC
  • Your rental activity earns you a net profit every year
  • Taxable income from the property exceeds your deductions

Save Money On Your Commercial Property Taxes Today, With The Hegwood Group

Don’t leave any money on the table this tax season. Work with a qualified property tax consultant to guarantee that you’ve earned every deduction possible from the property you own.

From general commercial property tax questions to assisting with property tax appeals, The Hegwood Group is Dallas’s go-to resource for property tax solutions that save owners time and money.

Contact us today to learn more about our services and schedule your free consultation with a member of our firm.

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