Rental property tax deductions are available for anyone who owns rental property with a very few exceptions. Of course, LandLordStation.com recommends that you consult with your tax attorney or accountant for specific information. We list some general information about tax deductions for rental property which has changed little over the years. The Tax Code is a fluid document and is always changing but the following list of deductions has always been available to the property owners. It is a good idea to familiarize yourself with this landlord information.
Deductible items include:
1: Repairs and Maintenance
Whether you are preparing the property for a tenant or paying for repairs, maintenance expenses are deductible. Be sure to keep receipts for every item you purchase including paint, paint brushes, trash bags, drop cloths, cleaning supplies and other things needed for cleaning and maintenance. In addition, keep receipts for tools that are required for any cleaning or upkeep. These tools usually have to be dedicated to the rental property. This means that they are only used for the rental property, not for personal use. Deductible tools include lawnmowers, drills, saws, weed eaters, paint sprayers, lawn care tools and more. It may be necessary to depreciate your tools over a period of time.
Necessary repairs are deductible in the year in which they were paid. Examples of deductible repairs include fixing plumbing leaks, roof repair, floor repair and more. Your accountant can advise you on which items are deductible, however don’t forget to keep receipts for everything you use in connection with maintenance and repairs on the property. LandLordStation.com has a convenient property vault for each property you list with us, so that you can scan receipts and store them.
Interest is often the largest deductible expense on rental property. You can deduct the interest that you pay on a mortgage for the property, on loans you make to improve or repair the property, and you can deduct the interest you pay on credit cards for services and goods used in your rental activity. Again, keeping accurate records is extremely important when planning on rental tax deductions.
3: Car and Travel Expense
Any time it is necessary to drive to a rental property or to a store to buy materials or supplies for a rental property, you can deduct the expenses. You have two options at this time for this deduction. You can deduct your actual expenses which include gasoline, car repairs or tires, or you can use the standard mileage rate. Figuring the mileage rate is complicated and is best done by a tax expert. We cannot stress enough the importance of keeping good records. Many people keep a notebook in their vehicle and note trips, mileage and dates. Be sure to keep receipts for gasoline and car repairs as well as mileage.
If you find it necessary to travel overnight for your rental activity, you can deduct airfare, hotel bills, meals and other expenses. This is an item that the IRS tends to look at closely, so receipts and documentation are especially important for these expenses.
4: Office or Home Office
If you maintain an office that is solely dedicated to your rental property and not used for any other purpose, you can deduct the expenses for leasing, utilities and maintenance of the office. If you own the office space and perform repairs, those would be deductible too.
If you maintain a home office, you have to meet special requirements in order to deduct the space. This deduction applies to the home office space as well as a workshop space, or storage space for tools and equipment. You will need professional guidance to determine what qualifies for deductible space in a home.
5: Theft and Casualty Loss
If there is theft on your property or if the property is partially destroyed or fully detroyed, you may be able to deduct some of the expenses incurred in connection with the loss. However, if you are reimbursed by an insurance company for all of the loss, you can deduct nothing. If you are reimbursed for part of the loss, you may be able to deduct the part that you pay out-of-pocket.
You are usually able to deduct the amount you pay in insurance premiums which pertain to your rental property. You should be able to deduct insurance premiums for fire, theft, flood and earthquake, as well as for landlord liability insurance. If you pay for insurance for employees whose work pertains to the rental property, you can deduct the cost of their health and workers’ compensation insurance.
7: Contractors and Employees
A deduction is allowed for payment of wages to anyone who performs services for your rental activity. You can deduct the wages of a residential manager or repair person for example. You must keep records that conform to the requirements of your state for state income tax reporting.
The cost of any major debt items that you incur for rental property cannot be deducted in the year in which you pay for them. For example, the price of your property will be put on a depreciation schedule and you can only deduct a portion of it each year over time. Other examples of items that must be put on a depreciation schedule can include a new roof, mowing equipment, construction tools and equipment, and more. In some cases, you may be able to use what is called segmented depreciation. Your accountant or tax attorney is the authority for allowable depreciation under the current tax code.
9: Professional Services
The cost of your accountant, your attorney, property management companies, listing and screening services, including LandLordStation.com, and other services are considered allowable operating expenses for tax purposes. In addition, advertising, utilities, commissions and more may be deductible. These expenses must be incurred for work related to your rental property.
10: Taxes, Assessments and Fees
Property tax on the rental property you own is charged by local cities, counties and states. Homeowner’s associations charge fees for maintenance and assessments can be levied on property to improve streets and utilities. Most of the taxes, assessments and fees pertaining to the property are tax deductible.
This list is a partial list that may be helpful when you ask, “Is rental property tax deductible?” Bear in mind that there are situations that can cause you to lose your rental property tax deductions. If you use tools and equipment for your personal use, the deductions on these will be disallowed. If you rent to a friend or family member, you can potentially lose all of your rental deductions.
The most important thing you can do to save money and maximize profit from your real estate is to keep good records. Although we suggest that you obtain expert legal and accounting advice about taxes on rental property, LandLordStation.com offers a variety of services and information for landlords pertaining to rental property tax deductions.
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