There are currently more than 139 million homes across America. These provide shelter and security to anyone who lives in them. However, not every American owns the property that they live in.
In fact, 43.6 million American households are rented-based. If you own more than one property, then you could rent out your second home as a form of income.
That said, landlords in America have a legal responsibility to keep their properties in good working order. This is why hiring is a Seattle property manager to take care of your repairs and improvements is a great idea. So what's the difference between a repair and a home improvement on a rental property?
Read on to find out whether repairs or improvements are the right choice for your property, from the best property manager in Seattle.
What Does Property Repair Involve?
Repairing property damage is all about keeping your property in good working order. This means that any repairs you carry out should not increase the value of your property in any way.
This includes basic parts of rental property management such as:
- Painting damaged walls
- Repairing broken appliances
- Repairing and inspecting HVAC systems
- Fixing water heaters
- Replacing severely damaged carpets and cracked tiles
- Repairing plumbing or electrical issues that make the property unsafe
- Structural repairs
This is all necessary to keep your property safe and prevent long-term damage.
Pros and Cons of Home Repairs
Routine home repairs are essential if your property is going to stay in good condition and without them it could quickly lose value. On top of this, you will find it hard to rent out a property with any of the repair issues we have mentioned above.
One of the best things about home repairs is that you can deduct their costs from your taxable income. So if you turn a profit on your rental property, you can deduct any property repair budget that you have used that year along with any management fees. This means you will pay less tax on your income overall.
However, standard property repairs will not improve the value of your property at all. This means that you will struggle to raise the monthly rental rate based on your routine repairs alone.
What Counts as a Property Improvement Project?
If you are interested in improving your rental property, then you will need to carry out an improvement project. This involves work that will make your property better or more adaptable for the people living there. Improvement projects can also involve the restoration of original features.
Improvement projects can include:
- Major repainting throughout your home
- Replacing appliances or installing new HVAC systems
- Replacing windows
- Installing new carpets and flooring
- Replacing wiring or pipework in outdated systems
- Installing new doors
- Replacing the roof of a property
- Installing smart technology or security systems
Of course, if you carry out any building works to extend your property, this also counts as an improvement project.
Pros and Cons of Home Improvements
Improving your property is a major undertaking but it is important to think of this as an investment. A lot of home improvements will help to increase the value of your property for renting and for selling.
For example, if you can offer tenants entirely new appliances then you can charge more per month to use these!
However, because this work is not strictly necessary, these types of repairs and projects are not tax-deductible. This means that you cannot use them to reduce the amount of tax you pay on your rental income. So you need to be fairly financially stable before you carry out any major repairs.
That said, if you are going to carry out any improvements, you can use these to reduce the amount of tax you have to pay in the years to come. Let's take a look at how this works.
How to Deduct Depreciation for Rental Properties
When you install a new appliance on your property, it can immediately increase the property value. However, most appliances have a limited lifespan and each appliance you install will not be new forever. Because of this, its value will depreciate over time and you can use this to your advantage.
According to the IRS, appliances for example have a useful lifespan of five years. This means that after installing a new appliance you can deduct depreciation costs of $1,000 each year for five years from your net taxable income.
The overall value of your property can also depreciate with time. This means that you can deduct a further 3.636% of the property's value from your taxable net income. So the more your property is worth, the more you can deduct!
While home improvements can cost more upfront, it is possible to make some of your money back by reducing the amount you pay in taxes. Or if you have been recording your depreciation deductions each year, you might have saved up for new home improvements!
Get Help From a Seattle Property Manager Today
If you have been renting your property out for several years with the help of a Seattle property manager, then you might be ready to make some improvements. Provided that you have deducted your depreciation costs each year, this could be a good financial move for you.
However, if you are a new landlord or are working with a tight budget, your best option is to handle your repairs and record your depreciation costs. That way you can save up until you are in a better position to make big financial improvements.
Are you looking for help staying on top of your property repairs? Find out more about how a full-service property management team can make renting out your home easier than ever now!
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