Owning rental properties can be a great way to earn a good income, provide for your future, and expand your investment portfolio. You will also find that some fantastic tax advantages are available for landlords. However, many landlords are not fully aware of all of these benefits, and they do not take advantage of them. They could be losing out on a lot of money.
If you own rental properties, or you are thinking about becoming an investor, consider the tax deductions discussed below to see whether they could apply to you.
Costs of Finding a New Property
You might be able to deduct some of the costs that you incur when you are looking for a new investment property. This can benefit those who are investing in properties that are not in their own cities. You could deduct the cost of airfare, hotels, meals, rental cars, and similar travel expenses. However, they need to be considered ordinary and necessary expenses.
Additionally, you have to spend at least half of the time you are traveling on business. This means that you can’t take a vacation and spend an hour looking at one property and then write it off.
Necessary Property Expenses
The typical property expenses that you pay for, known as necessary expenses, could be deducted, as well. The IRS defines these types of expenses as being things like insurance, utilities, and maintenance. It can also include advertising costs when you are marketing your rental properties and trying to get tenants.
This means that you could deduct the costs of electricity if you are paying for the electricity at the rental property. You could also deduct water, sewage, garbage, and other utilities that you pay for, as well as property taxes and HOA fees.
Things like pest control, HVAC servicing, landscaping, gutter cleaning, power washing, and deep cleaning between turnovers would qualify, as well. Any fees that you are paying that are deemed necessary to make the property livable could be considered deductible.
If you happen to rent equipment and tools to help maintain the property, then the money paid for those rentals can be deducted, as well. This might include renting steam cleaners when you have to clean the property, for example.
Interest Deductions
Were you aware that you could take deductions on interest payments that you make? Consider the various types of interest payments that you are making. This could be interest on the mortgage or interest on loans that you have used to make improvements to the property. It could also be the interest on credit cards that you used to make purchases specifically for the property. You can deduct the interest payments on all of these things, which could help you to save quite a bit of money each year.
Deductions for Repairs
In addition to the necessary expenses discussed above, you can also deduct the cost of repairs and upgrades made to the property. This might include things like fixing the roof, changing out a window, adding a new door, etc. Any repairs that you make could be deductible. Of course, you will want to make sure that you keep all of your records and receipts handy. You should also keep in mind that you can only deduct repairs in the year that those repairs were made. If you forget about a repair that you made a year or two ago, you will not be able to deduct it now.
Property Management Fees
If you have hired a property management company to take care of your property or properties, you can reduce your tax liability when you deduct the fees you pay them. These are considered to be administrative expenses, and you can write them off entirely.
Many landlords don’t realize that this is something that can be deducted. Working with a property management company can make handling running your properties much easier, and now you know that you can deduct those costs. This makes using these companies even more affordable.
Employee Deductions
If you hire employees or independent contractors for your business, it is possible to deduct certain expenses. This includes things like wages and contributions to social security. If you are paying the health insurance of employees, then this is something that you can deduct, as well.
Eviction Fees
As a landlord, you never want to go through the process of an eviction. They are time-consuming and can cause a host of problems. Sometimes eviction is the best option, though. Of course, eviction also comes with some large legal expenses. Fortunately, you will find that you can deduct the legal fees and court fees on your taxes if you find yourself in this situation.
Cost of Starting Up the Business
This deduction is specifically for those who are just starting up their rental property business. It may be possible for you to deduct part of your costs. This could include things like accounting fees, salaries, market study, and office equipment, for example. Startup costs are often counted as capital expenditures. However, if your startup costs are high—more than $50,000—you could deduct up to $5,000 of those costs. The other costs would have to be amortized.
Memberships and Subscriptions
When you are running a rental property business, you may have certain types of subscriptions and memberships related to your business that you pay annually or monthly. These could be deducted from your taxes, as well. For example, if you are part of a professional organization that’s tied to your business, you could write off the dues.
If you subscribe to trade magazines related to real estate investing, they could be deducted, as well. Other potential deductions include things like software, apps, and social media management tools. You could also deduct stock image services, stock photos, templates, fonts, and other tools that you are using for advertising and marketing your business.
Along the same lines, it may be possible to deduct a portion of the cost of your Internet and cell phone if you use them for your business. If you are going to do this, you will want to keep records and be careful about what percentage you try to write off.
Education in the Field
Another write-off that many landlords never think about is their education as a real estate investor. If you go to conferences, whether they are online or offline, or you attend networking events, those costs are deductible. You could also deduct coaches that are helping you with your business, and even books that you buy in your field.
Your Home Office
Do you have an office in your home where you do most of your work for your business? If you have an office that’s specifically for use with your business, you will want to consider taking it as a deduction. It has the potential to be valuable. There tends to be some grey area when it comes to taking this deduction though, and just how much you can deduct. If you are going to choose this option, talk with your tax professional about how much you can potentially write off.
Keep Looking for More Deductions
Above, we covered some of the most common deductions that landlords tend to forget or that they don’t know about. However, there could be other deductions that would work for your properties. Always look for ways that you can improve the cash flow of your business by taking appropriate tax deductions.
Plan Ahead and Stay Organized
Finding every tax deduction when it’s time to file can be stressful, time-consuming, and challenging to identify everything. It’s important to stay organized and prepare for tax season throughout the year as you’re more likely to maximize your rental tax deductions and have an opportunity to optimize your spending.
