Tax Benefits of Real Estate Investment

Disclaimer: Many agents at Brokers Guild are well-versed in real estate investment and tax exchanges, but we are not accountants or lawyers. Always speak to your CPA and/or seek professional legal advice with your real estate investments and tax matters. 

A Closer Look at Tax Benefits of Real Estate Investment

Real estate allows owners the opportunity to build wealth in a few different ways: appreciation, by building equity (with mortgage payments), and through tax benefits. 

Tax benefits are often overlooked since they’re less obvious than appreciation or equity, but they are a powerful tool for wealth building in real estate. It’s important to remember these points:

  • Your investment property is a business, which makes any and all expenses deductible. 
  • Clean and clear records allow you to maximize your deductions and stay above board with the IRS.  
  • While profit is preferable, net losses from your investment can be worked to a tax advantage.
  • When it’s time to start closing out your portfolio (when you retire, for example), there are strategies to defer some or all of the capital gains you make on appreciation. 

The Importance of Record Keeping

When you file taxes, you submit a Schedule E, which is a profit and loss statement for your property. If you end up making money (if your gains from rental income are greater than your losses), you’ll owe taxes on the net income.

The IRS knows that Schedule E is rife with gray areas, so they pay close attention to the form. This is why you must run your business like a professional. Keep copious and clear records and statements of your accounts to get the tax benefits you’re allowed under the law and to avoid trouble.  

Deductible Expenses for your Investment Property

Interest on your mortgage

Property taxes

Hazard insurance 

Repairs 

Management 

Maintenance

Capital improvements 

HOA fees/condo fees 

Supplies 

Mileage (to and from)

Legal fees 

Decor/furniture 

Advertising 

Utilities 

Realtor fees 

Loss & Depreciation 

If you have net losses on your rental, you can deduct the loss (up to $25K) from your income.* Alternatively, if you own more than one property, you can net loss from one against another rental which may have been profitable.

*You can take the loss as deduction against your income when you earn an adjusted gross income of less than $100,000. Loss deduction phases out when you make over $150,000 — and in that case it can be carried over every year until you sell the property. 

The IRS allows for a depreciation schedule on your property. They assume it’s going to take 27.5 years for the value of your improvement (the building, not the land) to go to zero. 

Depreciation example You buy an investment property for $300K. Note — you must subtract the value of the land, since land doesn’t depreciate, before calculating your depreciation. A good rule of thumb is to use 20% of your purchase price, or else you can check the tax assessments and see what the assessor used. Let’s say the land is worth $60,000 of the $300K purchase price, so you now have $240,000 to depreciate. 

Divide $240K by 27.5 years, which comes out to about $8500 per year. This means that $8500 may be counted as loss on your property’s profit and loss form (Schedule E) for the year, and can be deducted from your income (if you don’t make over the $150K limit). Awesome, right?

Depreciation Recapture

This is where it starts to get complicated, and it sometimes comes as a surprise to real estate investorsIf you’ve depreciated value on your property and you don’t actually realize loss when you go to sell (you probably won’t since real estate tends to appreciate) the IRS counts your depreciation deductions over the years as income, and you have to pay income taxes on it when you sell. 

Back to our $300K example from above, if you’ve owned a place for 10 years, you’ll have taken a total of $85K for depreciation over that time, so at time of sale you’ll have to pay about 25% back to the IRS, give or take (depending on your income bracket), which is about $21,000 in this case. Bummer, right? 

Deductions Carry Over

Adjustable gross income limits of $100-150K were set in the 1980s and haven’t been adjusted for inflation. These days, it’s not uncommon to make over $150,000 year. What happens to your losses and depreciation when you make over the limit and can’t deduct them? The answer is, they can be carried over to the next year, and the next year, until you sell the property.  And at that point, you’ll have a few options: 

  • Sell the property, and use your accumulated losses to reduce your income tax nicely for the year. 
  • Sell the property and purchase another investment property with a 1031 Exchange, which allows you to defer capital gains tax and carry over your losses to the next property (if they weren’t taken because your income didn’t allow for it). 

Investor Specialist Can Help!  

These tax calculations are complicated and there are a lot of moving parts, so, as stated up top, you’ll want a qualified CPA and a qualified real estate agency to help you work through your possible scenarios. We have tools which can help you determine every possible outcome, and a great network of service professionals in this arena to help you build your real estate investment team. Get in touch today for a call or a consultation!  

Tips on Finding a Good Tenant for Your Rental Property

Managing a rental property can be a challenging and risky business. Even if you hire a property manager, you must keep your books in order to protect your investment in case something goes wrong.

Hiring the right professionals when needed, such as an accountant or an attorney who specializes in real estate, is a great way to steer clear of trouble if and when tax audits or tenant issues come up. 

Your Denver real estate investment is a business. No tenant = no rent, and vacancy kills cash flow. 

The easiest and best way to keep an investment property profitable is to secure a good tenant and keep them in there for the long haul (unless you’re doing a short-term rental model, which is totally different). Here are some tips for securing a good long-term tenant: 

How to Find a Good Tenant for your Denver Investment Property

  • Make the place as nice as you can afford. Consider tiles, nicer flooring, mid-range (not lowest end) appliances.
  • Professional pictures. Possible staging. You can reuse the pictures, so just make it look fabulous the first time.   
  • Price it right for the area and condition. If you overreach, it will sit vacant, or you’ll get someone who doesn’t stay very long. 
  • Know your local housing regs and laws and be aware of fair housing and safety requirements. 
  • Create a written policy and stick to it. This can help protect you from discrimination lawsuits. 
  • Check tenant references, review background checks, and sweat those application details. 
  • Sign the lease at his/her place (so you can see how they live). If they refuse to have you over, it could be a red flag. 
  • Make sure the property is pristine for move-in. They’ll be more likely to take better care of it.
  • Time your leases right — ideally to end in spring/early summer — so if a tenant leaves, they’re easier to replace.
  • Use the right lease. Keep your deposit moneys separate. 
  • Require tenants to carry renter’s insurance. 
  • Keep records in a “CYA” file for seven years. 
  • Tour the place once a year to check filters and change smoke detector batteries. This gives you a chance to see how they’re taking care of the property. 
  • Find ways to say “thank you” to good tenants.

Remember that a long-term tenant is a partner helping you build real estate wealth –they are most likely paying your mortgage, after all. While you want to keep up with market rent, you also want to find ways to incentivize good tenants to stay. Sometimes a thoughtful little gift or maybe a gift card during the holidays can go a long way with the right tenant, and keep that personal feel. You may want to offer a financial incentive for something of value to you, such as a longer lease… 

Its hard to do real estate without a team. A good investor keeps a circle of trusted advisers to help them along the way. Our brokerage specializes in working with investors and we have an excellent roster of qualified and experienced professionals in the investment arena. If you would like an introduction to someone, just get in touch now and we’ll be happy to help.  

Spacious New Home in Wash Park

This contemporary Wash Park stunner has an expansive open floor plan with custom details throughout. With 4500 square feet of living space, you’ll find three en suite bedrooms upstairs and two additional bedrooms in the finished basement. The main floor has an elegant, modern dining room, chef’s kitchen with massive island, flowing to living room with fireplace, floor-to-ceiling sliding doors out to the flagstone patio. This house is an entertainer’s dream and a comfortable haven in the middle of one of Denver’s best neighborhoods. Click here for full listing details and photos. 

Join us as we kick off the weekend with this fun cooking event and happy hour at this glamorous property on Friday evening! Details and RSVP here.  We hope to see you!!! 

Can You Throw in a New Roof?

Recently I helped a client find a great house in a neighborhood she really liked. It had just come on the market and, sure enough, the listing agent was expecting multiple offers. After studying the comparable sales, we offered above asking price (by about 3%) — and won the contract!

The inspection was pretty good with no big surprises — except for the roof. It was a 30-year roof, and only halfway through its lifespan, but the inspector noticed a decent amount of hail damage. 

We wanted a second opinion, so we hired a roof specialist to come out and take a look (while still within the inspection contingency period). He confirmed that the hail damage was extensive and scattershot, and that by the time they replaced the shingles that needed it, they might as well install an entire new roof instead. 

One thing about Colorado, the frequent, extreme weather here has spawned quite a competitive roofing industry. This company gave us a reasonable estimate for full replacement, said it could be done in a day, and had time for it within two weeks. 

Sooo we asked the sellers to replace the roof as an inspection item. And guess what? They did. They ended up filing an insurance claim for the hail damage, and my buyer got a new roof with a warranty in her name. We didn’t even have to extend the closing date. 

Moral of the story — steep competition among contractors means it’s easier and cheaper to get a new roof than you might think in Colorado. And if you suspect your roof might be nearing the end of its useful life, you can always pray for hail.  ;)))

Denver Inventory Up in Summer 2019

Buyers Have More Power in Denver

Price appreciation has slowed in Denver, but it’s still not a buyers’ market.

Prices actually took a dip in January and February year over year, for the first time in a long time. By March we saw prices increasing again.

I’d venture to guess the government shutdown, or maybe trade and tariff strife, caused some consumer confidence issues in January.

In June of this year, Denver real estate prices reached a record median price of $454,900, up 3.5% year over year.

Inventory is up significantly, by 35% in June. There are more detached houses available, and the condo and townhouse supply had a good bump, thanks to a measure passed in 2017 which makes it harder for new homeowners to sue builders for construction, so the builders finally came out.

In any case, this summer’s inventory spike has provided much needed relief for buyers after several years of a highly competitive real estate market in Denver. 

Will the election affect Denver real estate?

Of course it’s hard to ignore national politics as we head into a big election year. We may see a slowdown as we get closer to November 2020 — as we saw near the end of 2016 — but the market should bounce back, barring any extreme circumstances.

It’s a good market to sell, so if you’re thinking of selling within the next five years, get in touch for a market snapshot, some educated projections, and free advice on getting your house ready for when the time comes. 

National Real Estate Buying and Selling Trends

NAR has posted this interesting map which shows where people are buying real estate. It’s designed to give insight into buyer demographics and property characteristics for real estate markets in different areas of the country. 

Colorado Springs was the top Metro area in the country for buyers, with over 11% of homes being sold within the last year. In Colorado Springs the average buyer was 38 years old and made $82,500 annually.

Denver had 8.8% of homeowners having bought within the last year. The average Denver buyer was 41 years old with $97,600 annual income. 

Where’s more inventory expected to show up?

The average tenure of homeownership these days is about 8-9 years. Click here for a map of areas with higher numbers of homeowners who are coming up on that 8-9 year mark for ownership. They should be moving on soon, and so we can expect to see inventory going up in those places.

Investors, take note. This map could be a good resource for those looking for out-of-state opportunities. Keep in mind, an area which is “selling” should have other good indicators, like job market and affordability ratios. 

It’s interesting that Austin and Phoenix came in number 2 and number 3. Phoenix has a higher buyer ratio on the first map, but not Austin. Are people over Austin? 

Please get in touch to share your opinions and questions. I would love to hear from you!

Best Camping in Colorado, According to Locals

This isn’t some glossy top ten list you’ll read in your airline magazine. This unofficial list has been culled from a neighborhood Facebook group of real Coloradans who know their mountains and own their gear.

Without further ado, here’s the list:

Lake Irwin Campground – near Crested Butte/Gunnison. Takes reservations. Trails, scenery, fishing, canoeing. 10,200 elevation. Cool days, chilly nights in summer. About a four-hour drive from Denver.  

Grand Lake — there are a number of campsites at Grand Lake, it just depends what you are looking for. Boating, swimming, fishing, horseback, wildlife. Seems fairly populated. 8300 elevation. About 2 hours and 15 minutes drive from Denver. 

Vedauwoo Campground – located in Wyoming. No reservations taken. Hiking, climbing, scenery. Used to be a hideout for outlaws. Check out the Snowy Range Scenic Byway when you’re up there. Just 3 and a half hours north of Denver, off Rte 80 between Cheyenne and Laramie. 

Deckers – super close, located in the San Isabel National Forest. Lots of campsites. Seems well-traveled but could be a good weekend. Just an hour and 15 minutes south of Denver.

Half-Moon East Campground – Pike & San Isabel National Forest. First come, first served. Hiking, fishing, scenery. Elevation 10,000. Two hours and 15 minutes from Denver. 

Guanella Pass – Elk and Big Horn Sheep! Hiking and fishing. No large RVs. West side, good campsites. Elevation 11,000 feet.  One hour and twenty minutes from Denver. 

Turquoise Lake – near Leadville. Multiple campgrounds, some take reservations. Camping, trails, scenery, fishing. Two hours from Denver.   

Mueller State Park – Views of the famous Pike’s Peak. Trails, wildlife, fishing. Elk, black bears, hawks! Less than two hours from Denver. 

Staunton State Park – Reservations only. Hike-in only. No RVs. Black bear country. Less than an hour from Denver! 

Southfork Campground – Rio Grande National Forest.Trails, rafting, horseback riding, fishing, scenery. Four hours fifteen minutes from Denver. 

Lake McConaughy — over the border into Nebraska. Fishing, boating, white sand beaches, camp right next to the water. Three hours and twenty minutes.  

Golden Gate Canyon State Park — near Golden, CO. Cabins, yurts available, as well as regular tent sites. Wildlife, scenery, horseback, climbing, fishing, snowshoeing. Just over an hour from Denver!

Rifle Falls State Park — out 70 past Vail toward Grand Junction. Waterfalls. Fishing, trails, educational programs, winter activities. Three and a half hours from Denver.

Ruby Mountain – near Buena Vista and the Arkansas River headwaters. Trails, scenery, fishing. Down Rte 285, two and a half hours from Denver.    

Pearl Lake — north of Steamboat. Water activities, wildlife, Trails. Almost four hours from Denver. 

Sylvan Lake – closed this summer for dam repair but it looks great. Peaceful, wooded, wildlife, scenery hiking, fishing, water activities. Cabins and yurts. Snowshoeing and cross-country skiing. Less than three hours from Denver. 

Gorgeous Remodeled Ranch House in Broadway Estates

Search current inventory of Centennial Houses for Sale in South Denver Metro

Listing Details

Lovely Ranch House in Sought-After Broadway Estates!

6644 S Clark Street, Centennial, CO, 80121
Price: $520,000
MLS number: 8249733
Bedrooms: 4
Bathrooms: 3
Square Footage: 2330

Centennial ranch in Littleton 6 school district

Call 720-514-9540 to see if this property is still available and arrange a showing.

Renovated to the Nines!

Wonderful opportunity to own this classic 4bed/3bath ranch home with modern style! This gorgeous remodel offers an open, spacious main living area and kitchen with designated dining space.

It’s not only pretty to look at. The systems are new and so is the roof! 

On-trend finishes and details throughout — spacious Master Bedroom with cool barn door closet entry, enclosed glass shower and jacuzzi tub, European tile accents. 

Centennial ranch in Littleton 6 school district

Soothing cool color palette and stained wood detailing make decorating easy and fun. Covered patio and expansive back yard for all your recreation and relaxation. A welcoming space which befits today’s lifestyle. Plus — new windows, new roof!

Open Floor Plan Perfect for Entertaining, Chilling

Centennial ranch in Littleton 6 school district
Centennial ranch in Littleton 6 school district

Click here to see additional images of this Centennial ranch in Littleton 6 school district!

Broadway Estates, Centennial Colorado

Broadway Estates is an enclave located on the west side of Centennial, Co, closer to Littleton and just a 25 minute drive to downtown Denver. Several parks, a golf course, the Goodson Rec Center and the exciting new Streets at South Glenn are located close by. The neighborhood is walkable and family friendly, especially since it’s located within the highly-rated Littleton 6 School District.

The Broadway Estates neighborhood is convenient and close to Centennial airport, and not far from 25 and 285, making it easy to get downtown or to skip town when you need a break. Cherry Creek State Park offers amazing water and recreational activities, including the very best acres-wide dog park in the area.

Find Similar Homes in the Area

For more pictures and information on this listing click here

For questions about this listing and to arrange a showing call 720.514.9540! 

Thoughts on Lakewood’s Strategic Growth Initiative

Earlier this year, the City of Lakewood voted to cap new housing construction. The housing restriction limits new construction to 1% of existing inventory each year, with exceptions for areas deemed “blighted.” The city council also must approve buildings of 40 units or more.

Proponents said the cap would help the city “catch up” on infrastructure, keep large open spaces viable, and fight loss of identity. These are certainly worthy goals, but by strictly limiting growth instead of shaping it, I’d argue that Lakewood has missed an opportunity to set an example for smart growth and remain an influential economic player in the region.

And given the housing affordability crunch that’s affecting so many Denver area residents, a close-in, well-situated suburb such as Lakewood should consider a more inclusive housing policy.

It’s easy to see why residents want to protect Lakewood. It’s a beautiful area, primely located between Denver and the mountains. The housing crunch is real though. Lakewood currently has less than a one-month supply of starter homes (priced between $250K and $500K) actively listed.

Lakewood is no longer a sleepy bedroom community. It has a vibrant business corridor along Union Boulevard, and the Federal Center employs more than 6,000 people. And you have Bel Mar and the Colorado Mills shopping districts serving folks from far and wide.

Let’s not forget another fantastic amenity in Lakewood: the RTD light rail zips right along 6th Avenue, all the way west to Jefferson County Government Center and eastwards directly into downtown Denver. While the light rail has its share of challenges,  its presence should be used as a catalyst to improve neighborhoods and encourage development, since more and more people want easier commutes and walkable lifestyles. When communities embrace and encourage the “no car” lifestyle with their growth policies, RTD ridership and service will improve.

Lakewood could preserve the feel of Lakewood, without shutting out development completely, by taking advantage of the RTD line and encouraging multi-unit housing — in the form of condos and apartments most likely — along the 6th Avenue stretch. Higher density development is easier on infrastructure, and restrictions can be used to shape growth. For example, the city might allow a very limited number of parking spaces in a building to discourage people from owning cars.

The fact is, developers will go elsewhere if it’s too restrictive to build in Lakewood. That may be just fine for proponents of this new law, but down the road the city will likely lose out to other areas. By fostering smart growth with more inclusive, but smart policies, Lakewood will be able to attract new residents, keep developers engaged and maintain its status and influence as a regional player.

Denver Real Estate Market Fall 2019

The city of Denver and surrounding suburbs are all performing well this year. Median home prices in Denver have doubled since 2012, but prices seem to be flattening out this year.

And here’s a look at a few of the suburbs. Lakewood and Englewood are very close in median price, and Aurora is one of the more affordable areas in the region. In the north, Arvada prices has been trending higher, but similar appreciation rates.

It’s not a surprise that starter homes in the lower prices points remain more competitive and have seen stronger appreciation.

Appreciation on homes with median price above 750K was less than half a percent.  

Appreciation on homes below $400K was almost 4% this year. 

It’s definitely still a sellers’ market under $400K although a bit less competitive than years’ past. It’s becoming more balanced in the higher price points, but until the supply goes up and it takes move than 2 months to sell a house, it’s still favorable to sellers.  

Overall, it’s a healthy market! We’re OK!  

Questions about this post or anything else real estate related? Give me a call at 720.514.9540.