Many people own rental properties and plenty of others have at some point considered owning rental properties. However, before you buy a rental property of any kind, you should spend a fair amount of time learning the intricacies of property management, including how it will affect your taxes. All rental property owners are subject to a landlord tax, among other things. Therefore, you should study the tax laws before deciding whether or not buying a rental property is a good idea. Or at least, find a real estate professional and tax professional or attorney with whom you can consult with before making any decisions. On the flip side of owning a rental property, there are tax benefits as well. And that includes a wide variety of deductions you can use to your advantage, but only if you know what they are. Here are seven landlord tax deductions you can use to help lower your overall tax requirement.
1. Can I Deduct the Interest On My Rental Property?
Just as you can deduct your home’s mortgage interest on your personal tax return, you can deduct the loan interest on your rental property as well. Additionally, you can also deduct the interest you paid to purchase improvements on your rental property, as well as the interest you paid on the cost of goods and services for that rental property. And, if you paid any buy-down points when you purchased your rental property or when you refinanced the mortgage, you can deduct those also.
2. Can I Deduct My Home Office?
If you manage your rental property from a home office, you might be able to deduct any associated expenses, as well as the space you use within your home for that office, if they meet a certain criteria. However, it’s a good idea that you thoroughly understand how this works before you begin.
3. Can I Deduct the Repairs and Maintenance for My Rental Property?
When you own any type of property, there will always be something that needs to be repaired or replaced. The good news is the IRS allows you to deduct the cost of those repairs and any costs associated with the maintenance of that property. You just need to make sure you keep the receipts.
You can deduct any types of repairs, as well as the cost of the labor to perform those repairs. You can also deduct the rental fees for tools and other equipment. Any type of maintenance service can be used as a deduction as well. Things such as landscaping services, pool cleaning, pest control and any service or repairs you had done on any of the equipment used to maintain your rental property.
4. Can I Deduct the Homeowners Association Fees for My Rental Property?
There are quite a few things that can be deducted from your landlord tax requirement, so much so that they are sometimes hard to keep up with. That’s why it’s so important that you take some time to learn them, if you want to lower your overall tax responsibility. Homeowners association fees are one of those surprising items that can be deducted as an expense on your tax return.
5. Can I Deduct the Insurance Premiums I Paid for My Rental Property?
Insurance premiums are another deduction that many people don’t realize they can take. The IRS will allow you to deduct, in most cases, the insurance premiums you paid for any of your rental property activity, including fire, flood, theft, mortgage, damage, liability, workers’ compensation, general liability and personal umbrella insurance.
6. Can I Deduct the Theft and Damage Losses Associated With My Rental Property?
When it comes to owning a rental property, sometimes things happen that cause damage to your asset. That’s just a part of doing business. However, if it does happen, you are allowed to use some, if not all, of the expenses you incurred due to the damages as a deduction. These would be things like a fire, flood, earthquake, landslide, vandalism and so on, which are also known as casualty losses.
7. Can I Deduct the Travel and Vehicle Expenses That Are Associated With My Rental Property ?
Travel and vehicle expenses are also considered a tax deduction; however, you have to be diligent when it comes to recording your mileage and other expenses.
Long Distance Travel. You can deduct things such as airfare, car rentals, taxi fares, hotel expenses and 50 percent of your meal expenses. However, you need be precise and keep all your supporting documents because the IRS closely scrutinizes these types of deductions.
Local Travel Vehicle Expense. If you have to drive to any of your properties, you are entitled to a tax deduction. There are two different options for deducting your local travel expenses, which are the actual expenses or the standard deduction. If you choose the actual expense method, you will need to record and keep receipts for your gas, repairs, maintenance and so on for your vehicle. If you choose the standard deduction, you will have to use the standard mileage method for the first year you use your vehicle for any business activities and you will also have to use the standard mileage rate for the current year, which can be found on the IRS website.
What Are Some of the Other Deductions I Should Look For?
There are plenty of allowable landlord tax deductions according to the IRS; therefore, you should spend some time reviewing the IRS website to learn exactly what you can and can’t do, if you don’t want to lose out on any deductions simply because you were not aware you could count them. Just remember, you can deduct almost all expenses, including capital expenses. You can also deduct loan and interest points, interest, depreciation, repairs and maintenance, taxes, insurance premiums, utilities, local and long distance travel, home office, casualty and theft losses, vehicle usage, management fees, legal and professional fees, office supplies and operating expenses, employees and independent contractors, advertising, commissions, startup costs and more.
The Bottom Line
Owing a rental property isn’t something you should take lightly as there is so much you need to know, before you get started. Because one small misstep could really get you into trouble. For example, if you own an income producing property and you rent it to your friends or family, you could lose almost all your tax deductions. And that’s just one example. Therefore, do spend some time to educate yourself and talk with a real estate attorney before you begin.
Please note: Â We are not tax specialists; therefore, this article should only be used for informational purposes. For professional tax advice and recommendations, please contact a tax professional.
2 Point Highlight
1. Before you buy a rental property of any kind, you should spend a fair amount of time learning the intricacies of property management, including how it will affect your taxes.
2. Here are seven landlord tax deductions you can use to help lower your overall tax requirement.
