As the calendar year comes to an end, there’s no shortage of financial boxes that need to get ticked before January 1st when it comes to your real estate investment. From analyzing your rental property’s utilities during the colder months to getting everything in order for the upcoming tax season, here are seven financial tips you should act on before the end of the year.  

1. Stay on Top of Your Taxes

Tax codes are constantly changing. Whether you use an accountant or CPA to file your individual taxes, or have your rental property set up as a limited liability company (LLC), it’s important for you to be aware of the following tax responsibilities as a rental property owner:

Federal Income Tax

The amount of federal income tax you owe each year depends on your filing status and taxable income, which is any net income your rental property generates. In 2023, rental income and other earned income will be taxed at the same rate. You’ll likely need to fill out Form 1040, U.S. Individual Income Tax Return when filing your federal income tax, and list all sources of income and any rental income earned in 2023. 

State Income Tax

Since each state has different rules for filing state income taxes, you should learn and understand your state’s regulations. Income from rental properties must be reported, but additional tax requirements for capital gains or sales taxes vary from state to state. Keep in mind, your rental property is subject to the tax laws of the state it’s located in even if you don’t reside in that state. 

Real Estate Tax

Real estate taxes vary from location to location and are imposed by the county or city where the property is located. These fees are based on a property’s assessed value, and are often used to fund public services, such as schools and libraries. This type of tax is typically calculated annually and, depending on the region, collected semi-annually or monthly. It’s especially important to keep track of real estate tax payments as these are typically due before the end of the year. 

2. Pay Outstanding Property Taxes 

If you haven’t run your year-to-date profit and loss report yet, now is a good time to check your end-of-year net rental income projections. If you’re comfortable with your property’s performance, you might want to consider making an additional property tax payment before year’s end, as long as your state allows it. If you’re able to, this can increase your property tax deduction when you file your return. 

3. Record Your Mileage

The IRS offers tax deductions for mileage expenses if you use your personal vehicle for qualifying business-related travel to your real estate investment. In 2023, you can deduct 65.5 cents/mile—the IRS standard rate. If you don’t already, you can start logging your hours throughout the year and reporting your mileage.

4. Maximize Tax Savings and Write-offs

There are several rental property tax deductions available to you as a real estate investor. Some of the most common deductions include:

• Repairs and maintenance: You can deduct up to $10,000 or 2% of the unadjusted basis of the property—whichever amount is less—for the cost of repairs and maintenance that took place at your rental property throughout the year. For example, cleaning carpets, repairing a dryer, or replacing damaged shingles could result in a deduction. Keep in mind that you can’t deduct the cost of improvements, so prioritizing repairs and maintenance may benefit you financially. 
• Office expenses: If you rent an office space or work from a home office, you might be able to deduct these expenses.
• Employees: Owning more than one rental property might lead you to hire employees or a third-party vendor to manage or maintain your real estate investment. Hiring employees and contractors, such as maintenance staff, painters, or carpenters, can also offer tax break opportunities.  
• Legal services: Legal services, such as real estate or eviction attorneys, may be tax deductible.

5. Pay Outstanding Invoices

Any outstanding invoices that aren’t paid by the end of the year will have to be claimed on the following year’s tax deductions. So if you’re expecting positive net rental income this year, it may be beneficial to pay your contractors, handymen, lawyers, and accountants before the new year. Outstanding invoices left unpaid may begin to negatively impact your property’s cash flow and financial status. 

6. Analyze Utility Costs

Colder weather typically brings higher utility costs as gas, electric, water, and trash collection bills often increase during the winter months. Take the time this season to analyze your monthly utility bills and see if there are opportunities to reduce expenses, including fixing water leaks, installing smart thermostats, and switching to energy-saving light bulbs. 

7. Reassess Your Insurance 

Making sure you have the right policy for your unique real estate investment can be time consuming and stressful. As such, many investors only reassess their landlord insurance coverage when their policies’ terms are coming to an end. Some folks might even have their policies auto-renew without reviewing. So, the new year might be the perfect time for you to take a moment and assess whether your current policy is sufficient in providing protection for your rental property. You can take this time to consider the impact inflation, replacement costs, and other expenses may have had on your finances. 

Preparing for the New Year

Getting your real estate investment’s financial ducks in a row prior to the new year can help you move into January with less stress and more confidence. Staying on top of and understanding your financial situation can also ensure that your real estate investment remains profitable while complying with any local, state, and federal regulations. 

If you’re looking to cross reassessing your landlord insurance off your checklist this winter, you can request a quote from Obie. Obie’s simple quote request process can match you with the right insurance for your unique property, making sure your rental property is protected.