If you own rental property, are you taking advantage of all tax breaks available to you?
Stocks, Bonds, Mutual Funds, Real Estate, and many other types of investments are all subject to taxes of some sort. Owning rental property can reward you with some very helpful tax breaks come spring time each year and things a landlord should keep track of.
Repairs or Improvements: Did you do some repairs or improvements to the rental property between tenants? Or did the plumber come fix the leaky sink? These and other repairs or improvements you’ve made to the property might be tax deductible for you. If it was a major improvement like a roof or HVAC replacement, consult with your tax professional to see if this item should be classified as an Improvement instead of repair which might get depreciated over time.
Interest: One of the biggest tax deductions landlords can take is interest expenses. This can include mortgage interest, home improvement loan interest, and credit card interest for property related repairs.
Depreciation of Assets: This is like a free deduction since you don’t have to spend any money to use as a deduction. You’re allowed to deduct a portion of the structure cost each year as depreciation (not the land value) over a 27.5 year period. Depending on the level of home improvement, the roof or HVAC replacement, or other major improvement could be depreciated instead of deducted.
Advertising: If you’ve paid to advertise or market your property in a local news paper, radio, or website, those could be tax deductible.
Travel Expenses: If you’ve had to travel to meet a prospective tenant, doing market research or home viewings, attending education courses/workshops for rental investing, trips to the hardware store for materials, and other expenses related to travel, all of these could be tax deductible for you if the primary reason for travel was related to rental property activities.
Contractor or Employee Wages: Whether you hire someone as an independent contractor like a lawn company, house cleaner, or painter, or as an employee to do management tasks, you can deduct what you pay them and benefits you provide.
Insurance: All properties should be insured, and if it has a mortgage on it, the lender will require it. However, those insurance premiums are deductible. Deductibles for casualty loss is also usually deductible.
Taxes: If you own property, you will have to pay taxes. But, you can deduct some of those taxes on the rental property.
Management and Professional Services: Maybe you decided to hire Rental Guys Property Management to professionally manage your rental property. Or you have an accountant or lawyer on your team to keep your investment in order. The expenses for those services are deductible. Hire the professionals to take care of the headaches and get a tax deduction savings in the process, win-win.
Lower Taxes On Other Investments: Sometimes if you show a paper loss from a rental property, you can use that loss to offset income from other investments. This is a little more technical of a deduction that should be left to the professionals to guide what’s best for you.
While we’ve listed several tax deductions rental property owners can sometimes use, you should check with your own CPA or tax professionals to see what options are available to you and the consequences of your decisions regarding your rental property and tax circumstances specifically.