Are you a landlord with a tax season headache looking for a break? It’s time to discover helpful deductions that will be your saving grace and make all your effort worth it. You may know of some already, but this tax toolbox leaves nothing unnoticed and is all you need to maximize your returns.
Landlords have many available tax deductions, which include almost everything you’ve spent on running costs for your rental property. You can subtract mortgage interest, property taxes, repair costs, utilities, property depreciation, etc. Property and appliance depreciation are subtractable.
If you own a rental property, you are likely eligible for deducting multiple associated expenses. This tax guide will leave you entirely clued up with all questions and concerns answered. We’ll tell you about every option, whether it applies to you, and answer some pressing questions.
16 Must-Know Rental Property Tax Deductions
Tax deductions allow you to subtract specific expenses related to the possession and management of your rental properties from your taxable income. It’s time to take advantage of these 16 possibilities to save much-needed cash!
1. Mortgage Interest
The most prominent tax break is the one you get for mortgage interest. You are allowed to deduct the interest you pay on your mortgage for the rental property to the value of $750,000 or up to $1 million if your mortgage was taken out before 16 Dec 2017. For investment properties, your mortgage interest counts as a business expense.
2. Property and Appliance Depreciation
Rental properties and their appliances often depreciate over time, which isn’t ideal, but luckily, this means you can subtract a portion of the property/asset cost from your taxes each year.
The Internal Revenue Service (IRS) permits landlords to subtract this depreciation as a non-cash expense on your returns. To claim this, you must determine the property’s cost basis minus the land value.
Appliance depreciation, or personal property/asset depreciation, applies to things like refrigerators, stoves, dishwashers, and furniture used in the rental property.
The depreciation period varies but is typically 5-7 years. You can claim the depreciation every year by spreading the cost of the item over its lifespan – as explained in this video.
3. Repairs and Maintenance
Costs associated with repairing and maintaining your property are generally able to reduce your taxes. These costs include general fixing, plumbing, electrical, and other routine repairs. However, unnecessary improvements that add value are not as easily deductible. For enhancements, you must depreciate the expense over its useful life.
4. Property Management Expenses
The excellent news for your wallet is that any fees paid to property managers count for your tax returns. This includes services like tenant screening, rent collection, property maintenance, and repairs.
Fees paid to attorneys, accountants, or other professionals used for property-related services all count for deductions. It’s essential to keep accurate records of all these payments.
5. Property Utilities
You can save on tax for all utility expenses such as water, electricity, gas, and trash collection – if you, as the landlord, take responsibility for these costs.
The IRS allows for all utilities as long as they are directly related to your rental property and considered ordinary and necessary. If tenants pay their utility bills directly, you’ll need proof of all transactions.
Tenant-Paid Expenses
Tenant reimbursements are costs that your tenants cover as part of their lease agreement. These can sometimes be tax-deductible if they meet specific criteria. Eligible expenses include Standard Area Maintenance (CAM) charges, utility bills, and property taxes – only if tenants reimburse you.
6. Insurance
Premiums for insurance policies covering your rental property can rack a hefty bill, but homeowners and landlord insurance are definitely considered. Almost all insurance related to your rental business qualifies, including landlords’ liability and employee’s health and workers’ compensation insurance.
7. Property Taxes
Who knew taxes are tax deductible? If you didn’t, now you can benefit too! All property-related taxes you’ve paid are considered operating expenses – giving you a tax break. It doesn’t make sense to pay tax on top of tax, and the IRS notices that.
There are no limits on the sum of property taxes you can subtract, but your total subtractable expenses should not exceed your rental income. If so, you can carry the excess costs to future years.
If you use the property for rental and personal use, you can only subtract the portion of property taxes related to rental periods.
Top tip: Tax preparation fees to file rental property taxes are also deductible!
8. Legal and Professional Fees
Any fees you’ve paid to attorneys, accountants, or other professionals who conducted services related to your rental property are eligible for a tax break.
9. Travel Expenses
If you own a rental property, chances are you’ll want to travel to it occasionally to ensure everything runs smoothly – but travel isn’t free! The good news is that you can deduct travel-related expenses, such as mileage, airplane tickets, lodging, and meals, eg. You need to collect rent money or inspect your property.
As long as you’re traveling costs are business-related, you can get a tax break – even driving to buy materials for a building project can count.
10. Home Office Deduction
You may be entitled to a home office tax break if you use a portion of your home exclusively to manage your rental property. To do this, you need to meet IRS criteria, which includes some of the following guidelines:
- Your office must be used exclusively and regularly for your rental property business.
- The area used for your home office must have a clearly defined area.
Your deductions will amount to a percentage of your home-related expenses according to the floor area of your office. You can calculate it using the cost of your personal mortgage interest or rent, property taxes and insurance, utilities, and home depreciation.
11. Casualty and Theft Losses
If your property bears damage from a sudden and unexpected event like a natural disaster or theft, you may be able to subtract a portion of the loss for financial relief. You must have evidence to prove the loss, such as photographs, police reports, insurance claims, or other documents.
The amount is determined by the loss in fair market value as a consequence of the casualty or theft, minus your insurance reimbursement. You must also subtract $100 per casualty event. The remaining sum can be claimed as a deduction.
You can only subtract the portion of the total loss that exceeds 10% of your adjusted gross income (AGI) for the tax year.
12. Advertising and Marketing
Costs linked with advertising the property for rent, such as newspaper ads or online listings, are all deductible as they are considered current expenses that keep the property running. Anything you’ve spent finding and attracting tenants to your rental properties counts – Brokerage especially.
Advertising and marketing expenditures are considered ordinary and vital for business as a landlord. Therefore, they are fully subtractable in the year incurred and must be reported on your Schedule E.
13. Repair Materials
If you’re a DIYer and you fix or improve your property on your own, your time and labor are not subtractable. However, any expenses for supplies and materials used for repair and maintenance projects can be subtracted.
14. Bank and Credit Card Fees
Fees to maintain the bank account or credit cards used for your rental property are counted for tax breaks. They are expenses necessary for managing and sustaining your rental properties. This includes monthly or annual account maintenance fees, transaction and foreign transaction fees, ATM withdrawal fees, and even cheque printing.
15. HOA Fees
The best way to benefit from this tax break is to hire a professional. HOA fees are a little tricky to navigate, but these are the general guidelines:
- If your property falls part of a homeowners’ association, you can usually deduct HOA fees if they are considered operating expenses.
- If your property is periodically residential, you’ll need to calculate the HOA fees based on the percentage of time the property is rented out.
- Suppose you are a landlord who lives on the property permanently and pays HOA fees. In that case, they are generally not tax-deductible because they are considered personal expenses.
- HOA improvement assessments may need to be capitalized and depreciated over time rather than subtracted in the current year.
16. Education and Publications
Expenses related to your education or industry publications can be subtracted if they are directly linked with your rental property activities and help you improve your skills and knowledge as a landlord. This can include in-person or online training, seminars, workshops, conferences, and real estate courses/publications.
These reimbursements must be clearly defined in the lease agreement, and you must keep all payment records.
Landlord’s Tax Deductions | Frequently Asked Questions
In case these tax breaks don’t solve all your queries, these most-asked questions should clear the air and leave you ready for tax season. You have plenty of opportunities to save money, but certain things aren’t eligible for deductions.
Can You Deduct Your Own Labor On Rental Property?
The IRS generally doesn’t let landlords inherit the value of their own time and effort. However, you can deduct the fees associated with repairs and maintenance, such as materials, or the costs of a property management company that handles your maintenance and repairs.
Can You Write Off HOA Fees On Rental Property?
One of the first questions landlords ask is whether you can deduct HOA fees on rental property. Yes, the IRS recognizes HOA fees as tax subtractable from your tax under certain conditions. For example, if you use the property for personal use for a period of the year, then you can only reduce a portion of HOA fees on your return.
Do Rental Properties Qualify For QBI?
Qualified business income (QBI) is the net revenue generated by any eligible business recognized by the Internal Revenue Code (IRC) Section 162. Rental properties are usually considered passive activities, not IRC businesses, and do not qualify for QBI deductions – unless you meet certain requirements and register as a business.
Can You Deduct Casualty Loss On Rental Property?
You can generally subtract casualty losses on a rental property if you meet certain conditions. These include:
- The casualty must be a direct consequence of a federally declared disaster, like a hurricane.
- The loss must be unexpected, sudden, and not due to neglect or a willful act.
- You must have evidence to confirm the loss, such as photographs, police reports, etc.
Can You Deduct Mortgage Payments On Rental Property?
Yes, you can get a tax break on mortgage interest payments on rental property. Mortgage interest tax deductions are one of landlords’ most significant tax breaks.
Can You Take Section 179 On Rental Property?
No, you cannot take advantage of Section 179 deductions as a landlord, but it is possible, with limitations, if you’re a registered real-estate business.
Is Home Equity Loan Interest Tax Deductible For Rental Property?
Home equity loan interest may be tax-deductible for a rental property under specific conditions. You must prove that the funds obtained were used solely for improvements on your rental property. Also, you cannot rent the property during that tax year, and you must specify it as a qualified residence on your tax return.
Is HELOC Interest Tax Deductible On Rental Property?
Yes, interest paid on a Home Equity Line of Credit (HELOC) may be subtractable under certain conditions and limitations. Note that the TCJA limits you to a $750,000 maximum limit for tax breaks on all residential debt.
Is Homeowners Insurance Tax Deductible For Rental Property?
Yes, homeowners’ insurance on rental property is typically tax-deductible as an operating expense.
Are Condo Special Assessments Tax Deductions On Rental Property?
Special assessments for condo rental properties can have different tax treatments depending on the nature of the evaluation. In general, repair and maintenance and significant improvement assessments are eligible.
Conclusion
Hopefully this landlord’s toolbox has enlightened you with everything you need to save money on this year’s tax returns. You may be eligible for some or all these tax deductions, but we are by no means advising you – only a registered tax practitioner may do so. May you find a clued-up tax professional and enjoy generous savings!