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Top Ten Tax Deductions for Landlords

February 27, 2018

If you’re anything like most landlords, tax season isn’t exactly the highlight of your year.

Taxes are necessary, yet an often-dreaded reality for most landlords. Tax owed can add up significantly and if you’re not prepared can quickly eat into your profits.

Fortunately, though, the IRS offers a number of different tax deductions for landlords that can help to ease the tax burden a bit. No one wants to overpay for anything, and claiming some of these deductions that you’re entitled to could help you to lower your tax bill.

From depreciation to interest, repairs, services –and even taxes themselves, there’s a lot that of different deductions that are available for landlords today. Let’s take a look at ten popular deductions that you could be claiming. 

Interest is often the single biggest deduction a landlord can claim. Interest that was acquired on loans or even credit card charges that were used to improve the rental property can be claimed back on your taxes. If you have a mortgage, you can even deduct the interest on the loan –often a significant amount!

Taxes have come full circle now! Did you know that you can deduct taxes on your returns? Other taxes that you’ve paid throughout the year including property tax, city tax, and even taxes for any employees that you’ve taken on for your rental properties can all be claimed on your taxes. If you have a mortgage through your bank, then often your taxes are paid through them and will show up on your 1098 form. However, if you are free and clear of any mortgages, then you’ll have to look up your tax records online if you didn’t keep receipts of the payments.

Repairs and Maintenance
Repairs are a constant when it comes to your rental, but fortunately for you, you can use these repairs for your benefit at tax time. Repairs to maintain the condition of the property are fully deductible in the year that they were incurred. This includes things like painting, plumbing, fixing leaks, replacing gutters, repainting, and repairing broken windows. It also includes maintenance tasks such as lawn care, HVAC services, tree pruning, and more. Improvements –things that add value to your rental can also be deducted, but not all at once. Instead, they have to be depreciated over several years. 

The cost of your rental unit itself is also deductible, but not all at once. Depreciation works by allowing you to claim the cost of the building; by spreading it out over a specific period of time, usually 27.5 years. Depreciation on the contents of the building can also be claimed, although over a much shorter timeframe, usually five years.

Travel Expenses
Regardless of if you live ten miles or one hundred miles away from your rental, your travel expenses are deductible from your taxes.

There are two types of travel deductions you can deduct:

Local Travel
Even if you live close by your rental, you can still deduct most of your travel costs to and from your unit. This includes gas, oil, and vehicle upkeep. Track your expenses yourself, or use the IRS’s standard mileage rate and claim a specific amount per mile that you drive for rental-related business.

Long Distance Travel
If you’re one of the 50 percent of landlords who live in a different town, or state then your rental, and have to make a long-distance trek to it, you can deduct those travel expenses as well. Airfare, hotel bills and even 50 percent of your meal expenses can all be deducted.

Professional Services
Professional services that you enlist to help you in the management of your property are also tax deductible. This includes property management fees, legal fees, and accounting services.

Insurance Premiums
All business-related insurance premiums for your rental are also tax-deductible. If you are trying to understand which policies are business-related, just ask yourself, “Would I buy this if I didn’t have this rental?” if the answer is no, then it is business related. As a landlord, it is quite possible that you purchased additional liability insurance to cover your bases, so be sure to claim that.

Utilities, if you pay them for your rental, are also deductible. This includes electricity, gas, heating oil, water and sewer, trash, and recycling. If you pay utilities and your tenants reimburse you, you can still deduct them –but you have to claim that reimbursement as income.

Employees or Contractors
Finally, if you have taken on employees for the specific task of helping with the rental properties you have or have hired contractors to help with repairs then their wages are deductible as well. This applies to both full-time and part-time employees.

Passive Income Losses
Since you earn money from your rental property, it’s regarded as passive income. This means that losses that you incur may also be deductible. If you earn under $100,000, you can deduct up to $25,000 in passive rental losses, although the amount you can deduct will decrease for every dollar your income is above $100,000. You must also actively participate in your rental business to qualify for this deduction.

In addition to rental income, equity growth, and appreciation, one other thing that makes real estate investing so lucrative is the wealth of various tax deductions that you can claim.

Just keep in mind, that while there are plenty of deductions available, it’s important to have a firm grasp on what you are deducting and why. Claiming a deduction that you’re not entitled to could end up costing you. You should also make sure you keep detailed records of your deductions, including receipts. In the event that you get audited, this can help to save you a lot of headaches.

Landlords: what expenses do you claim on your taxes? 

Note: This article is intended to inform and to guide. It is not meant to serve in place of tax advice from a licensed tax professional or attorney. Please consult a tax professional for information about your tax situation and deductions that you’re eligible for.