Renting property to others can be a very profitable business. But if you are a landlord, you have to be extra careful about filing your taxes properly in order to take advantage of the many tax deductions available. These deductions can sometimes mean the difference between earning profits and losing money.
The first step in getting your taxes in order is to be meticulous about tracking and organizing your receipts through the year. That way, when tax season rolls around you will have a clear sense of exactly what your income and expenses were throughout the year. Here are some common tax deductions and tips to help you get the most out of your taxes this year.
Claim Your Home Office
If you run your business from home, don’t be shy about writing off home office expenses on your taxes. You have to record expenses and manage your rental activities from somewhere. If you have devoted a room in your house to your operations as a landlord then you can take the measurements of the office space and deduct the resulting percentage of the rent or house expenses against your rental profits. The IRS often flags home office deductions, so be sure to submit accurate numbers. Visit their site for more information on this.
Repairs vs. Improvements
Renting a property means you are responsible for taking care of issues and handling repairs throughout the year. A repair is basically anything that is necessary to put the property back into the condition it was in before. You can deduct this entire expense from your taxes.
An improvement, on the other hand, is something that increases the value of the property. This can be things like installing a new toilet, renovating the kitchen or putting a new roof on a house. These expenses have to be capitalized and taken out of your taxes over a number of years using depreciation. The IRS website has more information on how to calculate depreciation.
If you use your own vehicle to get back and forth to your properties, run errands for the business, or pick up rent checks, you may be able to deduct business-related car maintenance. Figure out what percentage of your mileage was used for your business and then apply that to your total car expenses for the year.
If you hire a lawyer for business reasons, such as evictions or reviewing contracts, you can deduct your legal fees. You can also deduct the expense of using an accountant if your income includes revenues from your rental properties.
If you have a property manager or other employees, you can deduct their wages as a business expense. This applies to independent contractors as well, such as plumbers or repair persons.
In addition to claiming repairs and improvements made to your property, you can also deduct expenses for any regular maintenance that is necessary. For instance, if you hire someone to mow the lawn or trim tree branches at your property, you can deduct that cost. The same applies to pest control workers, pool cleaners, etc.
When it's time to file your taxes, make sure you are deducting everything related to running your property in order to ensure that you get the best tax breaks. Visit the IRS website or consult a tax professional if you have any questions about your tax status this year.
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