How Technology and Tax Deductions Improve Results, Part 3
By Himanshu Caplash, Senior Product Manager, Access Controls at LiftMaster®
In part three of our series, we explore more ways that a tax strategy can accelerate wealth creation by leveraging write-offs on technology, like a smart video intercom system. Previously, in part two of this series, we discussed how real estate investors can utilize depreciation for maximum tax reduction and leverage technology to retain tenants longer, boosting demand for their properties. Our conversation with WealthAbility® CEO Tom Wheelwright continues.
“Governments use tax laws to encourage seven primary types of investments,” Wheelwright wrote in his most recent bestselling book, The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make.“ Investing in any of them can lower your taxes and increase your wealth.”
Get Control of Your Real Estate Investments and Write off Technology that Improves Your Property
Real estate is one of the seven categories of investment the government will pay you to make, Wheelwright says. But that’s not the only advantage he sees to this type of investment.
A lot of people put their money into a 401(k). Where does that go? To Wall Street. And, as Wheelwright points out, individual investors have no control over Wall Street. By investing in real estate, on the other hand, an individual investor can become an expert in their specific niche — giving them much greater control over their results.
What’s more, Wheelwright explains, it’s possible to strategically use debt to finance your real estate investment without losing any tax benefits. Don’t max out your credit card; that’s not the kind of debt he’s talking about. When you borrow against a tangible asset like a piece of property, you get to take all of the tax benefits that come with that property — such as depreciation — in the same way, you would if you had paid cash.
When you consider that today’s renters expect the convenience of keyless entry and that smart video intercoms are at the top of their security and safety wishlist, the purchase of a smart video intercom system is a no-brainer.
Gen Y and Gen Z renters are willing to pay over $30.00 a month for smart apartment technology. When you attract and retain renters who will pay a yearly average of $370.00 more in rent and you multiply that by the number of units you have, your net operating income will go up, up, up.
Why Improving Your Property with LiftMaster Smart Video Intercoms powered by myQ is Smart Debt
It’s possible to strategically use debt to finance your real estate investment without losing any tax benefits. Don’t max out your credit card; that’s not the kind of debt Tom Wheelwright is talking about. When you borrow against a tangible asset like a piece of property, you get to take all of the tax benefits that come with that property — such as depreciation — in the same way, you would if you had paid cash. One of the ways the government incentives real estate investments is by offering tax deductions for many of the expenses associated with running a rental property like a smart video intercom that keeps your residents safe and your property secure. In some cases, you can deduct the full cost of an investment you make in your rental units all at once rather than depreciating the asset over time. These are called Section 179 deductions and include purchases of equipment, vehicles, and software within certain price thresholds. Here’s the best part. You can deduct up to 80 percent of the purchase price in the first year.
Home Office Tax Reduction Hacks
As a real estate investor, odds are you conduct much of your work from your home office. Yet, too often, Wheelwright says, people don’t take a home office deduction on their taxes either because they don’t know how or someone has told them it will be a “red flag” on their tax return. This can be a costly mistake.
If you are working with a good CPA, that person should be able to guide you in properly tracking the use and expenses related to your home office so that you can deduct them with confidence. And keep in mind, that with a wireless smart video intercom, you can manage who enters your property from your home office, without going on-site. Also, make sure your CPA explores both ways the IRS allows you to calculate the size of your home office: as a percent of the total square footage and as a percent of the total number of rooms in the home.
As an added benefit, having a home office often increases the deduction you can take for your car. How? Because when you commute from your bedroom to your home office, any other trips you take for business after that are deductible. Just remember the four rules for claiming a business expense as a deduction:
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There must be a business purpose for the expense.
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The expense must be an ordinary part of doing business, which means the type, amount, and frequency of the expense needs to be typical for your type of business.
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The expense must be necessary, which means it must create a profit or increase the market share of your business.
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You must document the expense correctly. Work with your tax advisor to understand what kind of documentation the IRS requires, and then put a solid process in place to make sure you document every expense so that you never miss a deduction. There are plenty of apps in the market that track time (such as real estate hours) and expenses, and you can always hire a bookkeeper for extra support.
Don’t Feel Rushed by April Tax Deadlines
If the tax filing deadline is approaching and you haven’t been on top of your tax strategy game, don’t panic. Many rental property investors file their returns in July
or August. How? They file an extension by the April filing deadline and use the extra time to get all of their documentation in order. If you haven’t thought about completing a cost segregation analysis, for example, those extra months can pay off.
“Just remember that the extension gives you more time to file your completed return, not more time to pay,” Wheelwright said. “You’ll want to accurately estimate what you owe and make any necessary payments.”
If you find yourself with an unexpectedly large tax bill, speak with your tax advisor. The penalty for late payments is relatively small (0.5% per month) if you pay in full by Oct. 15.
Author bio: Himanshu Caplash is a Senior Product Manager of Access Controls at LiftMaster® with over 12 years of experience building real estate technology and consumer electronics across startups and big companies, such as Latch, Intel, and ARM. He holds a BS in Electrical Engineering and an MBA in Marketing & Strategy.
