If you are considering getting into real estate investing and becoming a landlord, or already own rental properties, you want to make sure you are getting the best tax deductions for landlords.
Taxes are necessary for most landlords and can eat into your profits.
The IRS offers a number of different tax deductions for landlords that can help to ease tax burden. No one wants to overpay for anything, and claiming some of these deductions that you’re entitled to can help you lower your tax bill and make more money.
Interest Interest is often the biggest deductible expense a landlord can claim. Interest that was acquired on loans or even credit card charges used to improve the rental property can be claimed on your taxes. If you have a mortgage, you can deduct the interest on the loan, which can typically be a very large amount.
Taxes You can deduct taxes on your returns. Other taxes you’ve paid throughout the year including property tax, city tax, and even taxes for any employees that you’ve taken on for your rental properties can all be claimed on your taxes.
Repairs and Maintenance Repairs may be constant when it comes to your rentals and you can use these repairs for your benefit at tax time. Repairs are fully deductible in the year in which they are incurred. These include repainting, fixing gutters or floors, fixing leaks, plastering, and repairing or relacing broken windows, lawn care, HVAC services, tree pruning, and more. Improvements, things that add value to your rental can also be deducted, but have to be depreciated over several years.
Depreciation The cost of your rental unit itself is also deductible, but not all at once. Depreciation involves deducting a portion of the cost of the property over several years.
Travel Expenses When you travel to and from your rental, whether it is close by or long distance, your travel expenses are deductible from your taxes as well.
If you drive a car, SUV, van, truck or other vehicle for your rental activity, you have two options for deducting your vehicle expenses:
deduct your actual expenses (gasoline, upkeep, repairs), or
use the standard mileage rate (check the IRS website for rates)
There are two types of travel deductions you can deduct:
- Local Travel
- Long Distance Travel
If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip, you can mix landlord business with pleasure and still take a deduction, but IRS auditors pay attention and scrutinize deductions for travel overnight, and you need to properly document your long distance travel expenses.
Professional Services Professional services that you pay for that help you in the management of your property are also tax deductible. This includes property management fees, legal fees, and accounting services among others.
Insurance Premiums Premiums you pay for almost any insurance for your rental activity are also tax-deductible. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. Also, if you have employees, you can deduct the cost of their health and workers' compensation insurance.
Utilities If you pay for utilities for your rental, they are also deductible. This includes electricity, gas, heating oil, water and sewer, trash, and recycling. If you pay utilities and your tenants reimburse you, you can still deduct them, but keep in mind, you will have to claim that reimbursement as income.
Employees or Contractors If you have employees for your rental properties or hired contractors to help with repairs their wages are deductible as well. This applies to full-time and part-time employees. Research the tax rules that apply to landlords who hire independent contractors to help them with their rental business.
Legal and Professional Services
You can also deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals that are for services for your rentals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
You want to make sure your real estate is providing the best investment for you, so make sure you know all of the best tax deductions for landlords.