Rental property in the US is one of the most common businesses. All landlords pay millions upon millions of dollars every year. There are certain situations that landlords pay more than they should have. This is large because they don’t know what kinds of taxes they are paying.
It is very important to understand the expenses you are allowed to deduct on your taxes. Landlord tax deduction is important here to keep in mind.
Types Of Expenses
Ordinary Expenses
These are the most common types of expenses. A fine example of this is payment to a professional to fix a leakage in the sink.
Necessary Expenses
These are the most helpful types of expense. Hiring a good property manager to do corresponding and necessary is a big help.
Tax Deductions
Interest
Interest is the biggest tax deduction every landlord should know. It is also one of the biggest tax deductions for landlords. There are different types of interests landlords should be aware of
- Credit Cards Interests
- Car Loan Payments Interests
- Mortgage payments Interests
Professional & Legal Services
Tax deductions are also included in fees paid to the landlord’s real estate advisers, property management companies, accountants, lawyers, and other professionals. Landlords have the power to deduct these fees as long as the work is related to the property itself.
Rental Real Property Depreciation
Depreciation is the process of deducting the costs of buying a property at the same time improving the rental property. After buying a property the actual cost is not fully deducted. Landlords should know this to get back the rental property depreciation cost.
Insurances
Payment for premiums can be deducted for most of the landlords rental activity insurance. There are many types of insurance such as flood, theft, fire, etc. and aside from that, there is also insurance for landlords namely liability insurance.
If an employee is secure, landlord can deduct a cost base on their compensation insurance given to them.
Repairs
Repairs such as broken window replacement, plastering, leak fixing, gutters/floors fixing, and repainting are fully deductible in the year they occurred. Landlords should know that repairs also can help save money through tax deductions.
Independent Contractors & Employees
The payment landlords pay in hiring professionals is deductible if it were to be put as a rental property expense. This mostly works if the professional is the landlord’s employee or if it is an independent contractor.
Personal Property
De minimis safe harbor is pretty useful in this type of situation. De minimis safe harbor is a convenience administratively speaking. It allows landlords to deduct small expenditures for acquiring properties. The personal property cost can be deducted in one year at the usage of de minimis safe harbor deduction.
Home Office
After meeting specific requirements, landlords have the power to deduct home office expenses from their income provided they have a home office on their property.
Tax Deduction Pass-Through
There are many acts landlords should be familiar with regards to tax deductions. This new act will landlords deduct taxes because this act is under special income tax deductions and not the usual rental deduction. This act started in 2018 and deductions might expire in 2025.
Travel
Most landlords have vehicles for their properties. They are entitled to travel tax deductions for all of their driving activities at their rental properties. A good example of this is when there are repairs or maintenance which need buying of new parts or furniture and the landlord needs to drive to get it themselves.
Whether they own a pickup truck, panel truck, SUV, or a simple car, there are options for tax deduction at vehicle expenses. Here are some of them;
- Landlords deduction of actual specific expenses ( Vehicle repairs, upkeep, gasoline)
- Landlords use of standard mileage rate ( IRS website have the full list of rates )
Things To Keep In Mind
The list at the top is considered to be the most important tax deductions for landlords to know. Aside from them, there are also minor ones such as;
- Advertising is also deductible.
- Rents landlords pay to others.
- Relevant and important telephone calls on the property.
- Expenses with regards to making the property available to senior citizens and PWDs.
Conclusion
Knowing all of these will help landlords to lessen their taxable incomes which then lessen their tax burden. As landlords, it is highly important to know tax deductions so they can reduce the chance of them spending more money and hiring an accountant.
Mastery of these tax deductions will help landlords maximize their profits for their rental properties without having any problems with the IRS. It will help landlords reduce the chance of going into the red being bankrupt.