Landlords already know that when it comes to paying taxes, the system heavily favors landlords who are renting to tenants. Renters don’t get any tax breaks for renting, but landlords can reap great benefits if they are smart about filing. The U.S. tax code has many stipulations that let property owners reduce the amount of taxes they owe. Here are some tips on federal tax deductions for landlords that will be especially helpful to those who own multiple properties.
Current Expenses vs. Capital Expenses
Current expenses are usually costs that you incur occasionally in keeping the properties in good shape for your tenants. You can deduct these entire costs if the repair is ordinary and necessary, current and related to your rental activity. Fixing a toilet seat, patching up walls, repainting, etc. are all current expenses and these can add up over time when you are taking care of multiple properties.
Capital Expenses are anything that adds value to your property, and these have to be filed differently and depreciated over time.
Deduct Your Loan Interest
If you have mortgages on any or all of the properties, you can deduct all of your loan interest. This is usually quite a sizable amount, so it can greatly reduce the amount of taxes you’ll have to pay.
You can capitalize and depreciate the value of your properties, the value of any improvements made and equipment you need to run your business as a landlord. These have to be spread out over a number of years as the IRS explains here.
In addition to deducting repairs for all of your properties, you can also deduct any expenses for general upkeep of the apartments. This includes things like landscaping, pest control, smoke detectors and batteries, etc.
If you pay the utilities at any of your properties, you can deduct that full amount as well. However, if your tenants reimburse you for utility cost, you have to claim that amount as income.
Do you live close to your properties or do you have to travel by car, train, bus, or plane to get to them when you have to take care of something? Any long distance travel related to your landlord business can be deducted as well.
If you have fire, theft, flood, landlord liability insurance, or other types of insurance related to your business, you can deduct the premiums for these. If you have employees, you can deduct their health and worker’s comp insurance as well.
If you run your operation out of your home, don’t forget to expense the square footage of your office and all materials related to running your business. This can include ink, printer paper, pencils, pens, phone bills, and anything else you use to keep your business running.
Running multiple properties doesn’t mean that filing taxes have to be a headache! Check the IRS website, which is a great resource to help you figure out your tax situation. You can also use a tax professional if you still have questions and need help filing the necessary paperwork.
Please note: These articles are for informational purposes and we advise you to consult an attorney or accountant for more specific information related to your situation.
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