Tax Deductions

Top 11 Tax Deductions For Rental Property Owners

You wouldn’t dream of voluntarily overpaying your water and sewer bill. So why pay more taxes than you need to on your rental income? Sadly, millions of landlords are not aware of all the tax benefits available and overstate their income. Don’t feel too bad if you’re one of them. Rental properties provide more tax advantages than just about any other investment today.

Don’t leave a tax deduction unclaimed. Here are 11 legitimate tax deductions for rental property owners you don’t want to miss out on:

1. Repairs vs. Improvements

There is a fine line between what IRS agents consider improvements, and what they consider repairs. Anything like a new roof, updating windows, or replacing the furnace; all serve to restore the property and are considered capital improvements. On the other hand, if you fix a gutter, replace a broken window, or paint your property — these are all considered repairs and can be deducted in the present year.

Keep in mind that if you make these repairs as a direct result of an extensive remodel of your home, the whole project is subsequently considered a capital improvement. Don’t worry. Capital improvements are also deductible through depreciation. See tax deduction #6.

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2. Good ol’ Interest

One of the largest deductions a landlord can make is interest – it’s the gift that just keeps on giving. Landlords are allowed to deduct mortgage interest on the loan used to purchase the property. Other types of allowable interest deductions include the interest on personal loans and credit cards used for rental related purchases and services.

3. Taxes Are Ehmm… Tax Deductible

In addition to real estate taxes, a rental property owner can also deduct state, county, and local sales taxes.

4. Utilities Paid By The Landlord

Any utilities paid by the landlord for the rental property can be deducted. Say you decide to cover the electricity. Deductible. Trash, water & sewer services? All can be written off come tax season.

5. Travel

As the owner, you will undoubtedly make trips to and from your rental property to collect rent, manage, inspect, or maintain your rental property. Those expenses are all tax deductible. According to a study done by Cozy, a landlord services provider, 50% of rental property owners in the United States don’t live near the properties they own? That leaves a whole lot of landlords traveling to check on their investments. Whether it’s a car ride or a flight, there’s a way to deduct expenses.

A. Local: If you use your own personal vehicle for rental activities, you can deduct the expense in one of two ways.

1) Deduct the total cost

2) Use the standard mileage deduction, which the IRS states as 54 cents per mile as of 2016.

B. Long Distance: If you live more remotely, you can deduct: airfare, hotel, and any other expense that directly relates to the rental’s upkeep. However, you cannot deduct the cost of traveling if the main reason for your trip is to renovate your home. Remember capital improvements? Not to worry. The cost of such improvements will be recovered over time through depreciation.

6. Depreciation

The cost of buying your rental property is a business expense and, as such, tax deductible: a BIG one. The catch is you can’t claim it all at once. Landlords can deduct the cost of real estate through depreciation. Depreciation allows landlords to deduct a portion of the cost of their properties over several years. There are several depreciation methods. If the rental property was put in place after 1986, you will generally use the Modified Accelerated Cost Recovery System, MACRS, for short. Properties in service before 1987 will probably use the Accelerated Cost Recovery System (ACRS) or the straight line method. Not sure how to calculate your property’s depreciation deduction? Find a tax preparation firm or use professional tax filing software. SuperMoney provides free expert and consumer reviews on the leading tax preparation companies and software products.

7. Yard Maintenance

When you’re the property owner, more often than not, lawn maintenance will be your responsibility. Some landlords even opt to make a deal with one of the tenants to do the work and deduct the “fair market value” for these services.

Regardless of how you pay for it, if the grass is mowed or hedges are pruned, these are all deductible costs. Please note that major overhauls to improve the curb appeal of your property will be considered a capital improvement.

8. Advertising

Marketing expenses, such as online, radio, and newspaper ads are all legitimate expenses you can deduct from your rental income.

9. Insurance

Practically all insurance premiums you pay for your rental activity are fair game. That includes landlord liability, fire, theft, and flood insurance. It doesn’t stop there. If your rental business has employees — there were over 500,000 workers in the rental business in 2015 — you can deduct their workers’ compensation and health insurance.

10. Legal And Professional Fees

Do you have a lawyer on retainer? Needed some legal help to evict an uncooperative tenant? Do you have an accountant look over your tax return before filing? You can deduct all these fees as operating expenses, just as long as it’s for work related to the rental property.

11. Rental Losses

Has it been a bad year for your rental property? Did you spend more than you made? Your losses can also be deducted from your other sources of income. How much you can deduct depends on whether you spend most of your time in the real estate business. The IRS defines real estate professionals as people who spend over 50 percent of their working time in the rental business and a minimum of 750 hours per year.

Real estate professionals can deduct all their rental losses from all their income. Non-professionals can only deduct up to $25,000 of their losses against their overall income. However, rental losses that exceed $25,000 can be carried over to the next year.

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Having tax problems? Under audit? Tax relief companies can help you negotiate with the IRS.