Owning rental property is a great way to earn income. However, tax liability comes with the revenue. As a result, it’s important for landlords to know about a variety of tax deductions in respect to rental property.
Below are some common tax deductions for landlords, but consult your accountant for specifics relating to all deductions before filing your tax return.
Property Management, Legal and Professional Services
Legal and professional services are typically deductible. Professional services can include property management, attorneys, accountants, and other professions. Any of the fees related to rental activity may be deducted as operating expenses, so be sure to take advantage of the deduction.
Employees and Contractors
When you own a rental property, you may hire people to do maintenance and repairs. These individuals can be employees or contractors, and used for all sorts of things related to the maintenance of the property. As with all deductible expenses, keep a record of expenses related to employees and contractors, so you can deduct them on your tax return.
Maintenance, Repairs, Casualty, and Theft
Rental properties must be maintained and repaired, which can result in a significance annual expense. If the maintenance and repairs are necessary and reasonable to maintain the property, the costs are usually deductible the year of the repair. But check with your accountant, because this deduction can be tricky, especially if value is being added to the property.
Major losses can occur from a fire, flood, burglary, national disaster, etc. and can cost thousands of dollars to repair. When this occurs, consult with your accountant and possibly your attorney, since the tax deduction can depend on how much of the property was destroyed and whether the loss was covered by insurance.
You may need to travel to conduct business relating to your rental properties. Costs for travel are generally deductible, and include meals, lodging, vehicle expense, tolls, etc. But some expenses are not fully deductible, and different methods of calculating expenses could be more advantageous based on the specifics. So make sure you meet with your accountant to determining the best method of calculating travel expenses, and the documentation you need to take the deductions.
As a landlord, you may have an office. You might have a home office, a fully staffed office away from home, or you might have both. The cost of a home office may be deductible, depending on the exact circumstances, so consult your accountant. But an office away from home is usually easier to expense, including the depreciation of assets, rent, equipment, insurance, payroll, etc.
Interest is one of the largest tax deductions for a landlord. Interest can be in the form of mortgage interest payments, credit card interest, and interest invoiced from suppliers for goods and services.
Depreciation of rental property is deductible, and involves deducting certain costs of the property over several years. To determine the specifics of what is depreciated and the annual depreciation tax deduction, consult your accountant since the calculation and tracking can be difficult.
You can deduct insurance premiums for about any rental property insurance. Types of insurance you might carry could include fire, theft, and flood insurance for rental property, landlord liability insurance, and health insurance for employees.
Robert J Russell, IRES, ICREA, REALTOR has been helping people for over 15 years in Real Estate and over 30 years in Insurance.