Too often landlords can miss out on potential tax benefits and can end up paying more taxes than necessary.
Whether it’s mortgage interest, water bills, or advertising expenses incurred, many of the associated costs that accompany rental property ownership can be used to offset rental income on your federal tax bill.
The following six tax deductions can offer benefits for most rental property owners.
If you’re using a property you own as a rental, then the IRS allows for depreciation of the property’s building value. (It’s important to note, however, that the IRS doesn’t allow for land value depreciation to be deducted.)
Improvement and Rental Property Repairs
You can also apply to have the IRS deduct expenses from rental property repairs. Whether it’s fixing a leaky hose on an existing dishwasher or shoring up a damaged handrail on the front porch, repairs typically carry a valid deduction.
Improvements and upgrades, however, are treated differently. The IRS considers projects such as updating a bathroom or installing a new water heater to be improvements. Over time, the value of these improvements may depreciate. For example, the value of a new dishwasher might decrease over a five-year period.
If your mortgage interest is $600 or more, then you can ask the IRS (by using Form 1098) to deduct it from your federal return.
Not all deductions are hefty; smaller miscellaneous expenses such as insurance premiums, monthly gas, water bills, and even membership fees for homeowners associations can often be deducted annually. These deductions can potentially help reduce the amount of taxes you need to pay.
Is your rental property located across town or even further away? If so, then you can ask the IRS to deduct the mileage it takes you to get to the rental property. But to get a green light on the deduction, make sure that attending the rental property is the primary purpose of the trip.
In your home, you might have an office space for which you have to pay utility expenses, such as monthly internet fees. These types of expenses can be deducted if you use your home office and utilities solely for the administration of your rental property.
To keep track of your property expenses and possible tax deductions, it can be helpful to use accounting programs and services like ZipBooks. It’s also worth sitting down with a tax professional to discuss the full benefits available to you under the tax code. And here’s an extra tip: your meeting with a tax professional can be deductible too.
May 3, 2018