Top 4 Tax Deductions to Remember
4 Tax Deductions Landlords Often Forget to Claim
A lot of landlords feel intimidated during tax season. They want to save as much money as possible, but they do not want to make mistakes that will force them to pay hefty fines.
There are plenty of ways for landlords to save money without increasing the risk of audits. Make sure you take advantage of these four tax deductions landlords often forget to claim. They will lower your tax burden and help you build a more successful business.
1. Loan Interest
Unless you happen to have a lot of capital, you probably need to borrow money to purchase rental properties. That means you will have interest payments. Luckily, the IRS lets you take a tax deduction for the money you spend on interest.
This is an important deduction that all landlords should take when they can. If you borrow $150,000 with a 30-year mortgage that has a 4.5% interest rate, then you will eventually pay the lender over $123,000 in interest. Missing those deductions could seriously stunt your business.
2. Management Fees
Many landlords use online tools to make property and tenant management easier. Instead of spending time screening tenants and tracking down payments, they enjoy the convenience and security of letting someone else handle those jobs.
Since management fees are considered a business expense, you can deduct them from your federal taxes. Even if you only spend a few dollars a month on management services, it's worth taking the deduction.
The money you spend on property taxes should get deducted from your business's income. It's not only a business expense, but a form of tax that you have already paid. You are not required to pay income tax on money used to pay other taxes.
Keep in mind, however, that you can only deduct the property taxes that you pay during the same year that you made income from your rental properties. In other words, when you're completing your 2015 tax forms, you will only deduct the property tax that you actually paid in 2015.
This is sometimes confusing to people who pay their 2015 property taxes in 2016. If you do not make the tax payment until 2016, then you can only include the property tax deduction on your 2016 tax return.
4. Office Expenses
Practically everything that you use in your office is considered a business expense. Some common expenses you should deduct include:
- Printer ink
- Computer software
You can also take deductions for any decorations that you put in your office, including artwork and plants.
If you rent an office, you can deduct that expense from your taxes. If you run your rental business from a home office, then you can take the simplified deduction that gives you about $5 per square foot (up to 300 square feet) or the regular deduction that considers how much money you spent on utilities, mortgage interest, and taxes.
The simplified home office deduction is fairly new, so a lot of people miss this when doing their taxes. Depending on your specific circumstances, you could actually get a bigger deduction by using the simplified method.
It's always a smart idea to keep track of your expenses so you can prove to the IRS that your deductions are legitimate. If you haven't started saving invoices and receipts yet, today is the right time to start.
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