Top 10 Tax Deductions for Landlords!

 In Blog

Everyone knows that paying taxes is a part of life and many people want to learn how to reduce the amount of taxes they have to pay each year.

The U.S tax code has rules that allow rental property owners to save money and reduce their yearly taxes.

In this article, the best federal tax deductions that rental property owners should take advantage of will be explained.

This is not being written by a tax professional, attorney or CPA; just a simple experienced landlord who wants others to learn how to use all the tax benefits. Read and use what you can and always double check all suggestions with your accountant as tax laws change yearly.

What is an Expense?

There are two types of expenses: Current Expenses and Capital Expenses.

But what’s the difference between the two?

Current Expenses

Simply put, “current expenses” are things that help to keep your rental property working well and livable all year round. And that means that the whole expense can be deducted from your taxes in the same year that it was incurred! (“Current” meaning the same year). Since these items and repairs are ones that improve the conditions of the property.

But how do you qualify it as a Current Expense? Here are a few tips:

1. Current

It must have more short-term value than long-term value. For example, fixing an air conditioning has short-term value, while replacing an air conditioning has much more long-term value.

2. Directly Related to your Rental Activity

The expense has to be related to your business on the property.

3. Necessary and Ordinary

Necessary expenses are ones that are said to be needed for the rental property (i.e. taxes, advertising, utilities, insurance, etc.). Ordinary expenses are ones that are common in the business of rentals.

4. Make Sure it’s Reasonable in Price


Capital Expenses

A “capital expense” or “improvement” is everything that can increase the value of your property or extend its life. [Not only that, but it must be capitalized and depreciated over multiple years. Your accountant will help you with this.]

If this confuses anyone, you can use this guideline: if any item costs hundreds of dollars (or more) to replace on your property, it can most likely be taken our as a capital expense.

Now that we know the difference between current and capital expenses, let’s dive into those tax deduction opportunities!

10 Top Tax Deductions for Landlords

Thinking about claiming these deductions soon? Make sure you have a detailed and thorough record of what you wish to deduct. The IRS inspects these deductions thoroughly and you want to be prepared if you get audited. If you aren’t prepared with the proper receipts and can’t validate what you wish to deduct, and you will possibly have to pay not only the amount due but also the interest incurred.

 1. Not Allowed:

Real estate taxes are usually paid through your mortgage company. Thus they appear on the 1098 Form, sent to you from your bank.

Quick examples of tax deductions:

  • Social Security taxes for employees
  • State, County, and City taxes
  • Permit and Inspection fees

2. Loan Interest

IF there is still a mortgage on the property, then the loan interest will most likely be your largest deductive expense.

3. Depreciation of Assets

There are 3 types of costs that you need to capitalize and depreciate:

— Equipment, computers, and laptops used in the business.

         — The value of the structure (property), but NOT the land.

         — The value of improvement (i.e. appliances, carpet, countertops,

              windows, etc.).

4. Repairs

Repairs are defined as any attempt to sustain the current condition of a property/asset.

Examples of repairs include:

         — Plumbing repairs

         — Air conditioning repairs

         — Painting and/or spot patching

         — Incidentals related to repairs

         — Labor costs and contractors

         — Fixture repairs

         — Rental fees for tools and equipment

5. Maintenance

Many people confuse maintenance and repairs with each other. However, an easy way to remember the difference is: with maintenance, you are not directly fixing a problem. Maintenance activities are periodic improvements of the property (even when nothing is broken).

Examples of maintenance are:

         — Pool cleanings

         — Pest control and treatment

         — Landscaping and tree trims

         — HOA fees

         — Light bulb changes

         — Tune-ups on lawn equipment

         — Smoke detector batteries

6. Utilities

Do you have rental property utilities that you pay for? You can deduct those! Even if your tenant pays you later for the expenses, you can claim them. But, you have to claim the reimbursements as income.

Examples of utility expenses:

         — Electricity

         — Heating oil

         — Water and sewer

         — Gas Fees

         — Trash and Recycling  

7. Insurance Premiums

All insurance premiums, that are business related, are tax deductible. How do you determine if the insurance is business related? Well,  if the insurance is one that you would buy even without having a rental property then no, it is not.

Examples of insurance:

         — Homeowners Insurance

         — Fire, Damage, and Liability Insurance

         — Mortgage Insurance Premiums

         — Flood Insurance Riders

         — Theft Insurance

         — Personal Umbrella Insuranc

8. Travel Expenses

Did you know that over 50% of landlords do not live near their property? With that being said, any long-distance travel to visit your properties or to manage the rental business can be tax-deductible as a business expense.

Examples of travel expenses:

         — Hotels

         — Car rentals and taxis

         — Airline Fare

         — ** Special one: 50% of meal expenses during the travel time

9. Professional and Legal Fees

If you have to hire a professional lawyer, accountant, or any tax professional you can expense that cost.

Examples of costs:

         — Accounting Advice

         — Legal fees

  • Lease review and editing

**P.S if you ever have to evict a tenant, all of the reasonable court costs and filing fees can be expenses.

10. Management Fees

Even great landlords need help every now and then. Especially when you start to invest in multiple properties. If and when you hire a property manager for your rental, you can deduct that cost as an expense.

Examples of those management fee expenses:

         — Property management companies

         — Individual property manager

Now aren’t those a lot of excellent and useful ways to use your property to your advantage on your tax deductions this year? Begin today by keeping record of what you’re spending on your property and classify them properly. You never know how much it will add up to at the end!

Written by: Christina Starmer: Instant Tenant – Instant Landlord

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