The Top 5 Tax Deductions For Rental Property Owners

There are many landlords who pay more taxes than they should every year, usually because they aren’t familiar with the deductions they can claim. It takes a thorough understanding of tax law and strategic planning to take advantage of all available deductions. Here is a guide to the top five deductions you should claim.

1. Deducting Interest
Perhaps the most important deduction to take is on interest payments, which can represent a significant amount of money each year. This can cover many types of interest payments, including interest on mortgages and loans that were used to purchase or improve your rental property. These interest rate deductions also extend to credit card interest payments that were used to purchase goods or services in relation to your rental properties. Remember that this doesn’t apply to the principal that you initially paid for the property, only the interest accrued.

2. Repair Deductions
The cost of repairs can add up significantly over the year, but the good news is that these repair costs can be deducted from your taxes. Repairs to your property can take many forms:

  • Fixing leaks
  • Repainting
  • Patching a roof
  • Plumbing work
  • Replacing a broken door
  • Plastering a hole in a wall
  • Replacing a shattered window
  • and more

Be sure to keep receipts and records of all repairs you make. Also be aware that you can only deduct repair costs made the year you performed them, so be sure not to wait on this deduction until next year.

3. Travel Costs
Do you find yourself traveling constantly to repair property, pick up building supplies or meet with a tenant to discuss a problem or complaint? The great part about travel-related expenses is that they are all deductible. This even applies to overnight travel involving flights to other cities. For example, if you attend a real estate conference to help you understand how to improve your business, the plane ticket and hotel costs would also be deductible. At the same time, overnight travel is likely to be the most scrutinized by the IRS when you file your taxes, so it’s important to keep thorough records that can back up your deduction in case of an audit.

4. Depreciation Deductions
Depreciation is one deduction many landlords don’t quite understand; however, this can add up to big savings every year. The basic concept of real estate depreciation is that the IRS allows landlords to claim a “paper loss” on the value of their property. This is based on a model that stipulates that properties will lose value over 27 and a half years, which brings the value of their property from what they originally paid for it to the price of zero dollars.

Each year you can claim 2/55ths of the purchase price for 27 years. The formula for depreciation can be much more complicated and often requires an accountant for proper calculations. It’s worth the extra work, though, due to the amount of money that can deducted. Don’t forget to deduct the cost of using your accountant either, which is also permissible when it’s related to real estate activity.

5. Insurance Premiums
If you own a rental property, you’re probably paying quite a bit for insurance. This includes flood, fire, and theft insurance, as well as certain liability insurance expenses. You might even be paying for your employees’ workers compensation and health insurance. Thankfully, all of these insurance premiums are deductible.

As you can see, there are numerous deductibles available to landlords that you can use to maximize your savings. Include these five on your list of deductibles, and you’ll be doing your rental property taxes the right way.

 

Please note: These articles are for informational purposes and we advise you to consult an attorney for more specific information related to your situation.

What Is a Wrongful Eviction?

There are always going to be problematic tenants from a landlord’s perspective.

From the tenant’s perspective, there are always going to be problematic landlords.

A vast majority of tenants and landlords have a mutually beneficial relationship that works for both groups.

When that relationship turns sour or there is a lease violation, however, a wrongful eviction can easily happen.

What is a wrongful eviction?

It is when a property owner, a landlord, or an agent acting on behalf of either party forces a tenant out of a residence without legal authorization to do so.

There are a number of ways this might happen.

1. By changing the locks on the building in question after removing personal effects.

2. By shutting off the utilities to the building.

3. By bullying the tenant into leaving the property through abuse and intimidation.

Tenants often have a lot of leeway to correct the issues that they may have created.

Most landlord-tenant laws require that a property owner, landlord, or agent give that tenant every opportunity to rectify the situation.

That’s why a specific eviction procedure must always be followed.

Landlords Almost Never Have Authorization To Remove Tenants

Only in specific jurisdictions is there any authorization for a landlord to physically remove a problematic tenant.

Most of the time the tenant who is in violation of a leasing agreement must be notified that they are in violation in writing.

They will be given a specific time frame to rectify that violation so they can return to compliance.

The most common reason why a tenant falls out of compliance with a leasing agreement is because of a non-payment of rent.

Any violation of the lease can be grounds to send a violation letter, but landlord-tenant laws have a specific amount of time that ranges from 3-30 days to rectify the violation.

Only if the violation is not rectified by the deadline given on the notice can a landlord then proceed with a formal eviction.

To do so, an “unlawful detainer” must usually be filed in the local court system.

Did You Know Tenants Can Evict Themselves?

Landlords, property owners, or their agents can also be “evicted” by tenants for the same reasons.

If a landlord fails to live up to their obligations in a leasing agreement, a tenant is allowed to send notice of this violation in writing and be guaranteed protections against retribution for such an act.

If the property being rented does not meet basic needs in a specific time frame, often just 24 hours, a tenant may “evict” themselves from the lease without penalty.

Tenants who legally break a lease must still surrender the property in a condition that is equal or greater to the condition they received it.

A security deposit cannot be used in this situation to correct an issue that was reported as a violation of the lease by the tenant.

Otherwise all other applicable security deposit laws are generally enforceable during the separation process.

Why Can’t Self-Remedy Options Be Legal?

It would be a lot easier to be able to just evict some tenants without court intervention and legal fees, but the rights of a tenant cannot be overlooked.

It might be your property, but it is a tenant’s home.

The law protects this right.

You entering a home without permission or a legitimate emergency could be construed as breaking and entering and that means a tenant has a right to defend themselves and their property in many jurisdictions.

That’s why letting the court system and law enforcement handle a problematic is a good idea.

It keeps everyone safer and although it may be an added cost, it is generally a cost that is worth spending.

This process also eliminates any litigation costs that may come from accusations that a landlord stole or damaged personal property during the process.

Just like most tenants won’t need to ever be evicted, most tenants that receive a violation notice will rectify the situation.

For those that receive a court-ordered eviction, they will leave before law enforcement arrives.

Only a small minority of tenant will need to have a full eviction, just as a small minority of landlords break leases on their end as well.

What is a wrongful eviction?

It is any process that attempts to remove a tenant from a property without legal permission.

Make sure to follow the steps outlined in your local landlord-tenant law today so that you can stay in compliance.