As a landlord, you can claim a lot of deductions at tax time. In fact, the real estate rental category is eligible to write off more expenses than most other categories - so do not let your deductions go unclaimed! By learning which deductions are available to you, you will be prepared to get your full benefit. Let us take a look at some of your available deductions.
If your rental income is more than your rental expenses, you can write off your rental property loan interest, whether the loan is for a property you've acquired or a property improvement. When you have less income than expenses, deductions get a bit trickier. See our article on passive activity loss rules for more details on this. On the flip side, if you make more than $25 million a year, there's a limit on the interest deduction you can take, unless you agree to increase the length of your depreciation schedule by two and a half years, from 27.5 to 30.
Business Credit Card Interest
Interest you incur on your business credit card is deductible. The purchases must be for rental property goods and services, so if you keep your personal expenses and business expenses separate, this shouldn't be a problem. If you use your business card for personal expenses, however, speak with a tax professional about deducting this interest.
Your property may be in pristine condition now, but overtime it'll experience wear and tear, which you'll need to fix. As it ages, it'll also see competition from newer rental properties in the area. To ease this depreciation, you're able to deduct what you paid for the property (minus the land value) over a period of 27.5 years. To apply this deduction, take what you paid for the structure and divide it by 27.5 years. Deduct the resulting amount each year over this period of time.
All the insurance premiums you pay are deductible. This includes property insurance perils, like hurricane, hail, flood, sewer backup, and the like. It also includes loss of income insurance and liability insurance. If you insure employees, you can also write off those premiums.
Business Fees and Taxes
Business Bank Account Fees
In addition to writing off business credit card interest, you can deduct your business bank account fees and charges.
Homeowner Association Dues or Condo Fees
When your rental is a condo or part of a homeowners' association (HOA), you probably have to pay a condo or HOA fee. These fees are generally deductible. What if you're running your business from a home office and your personal dwelling is a condo or part of an HOA? Can you deduct some of the condo or HOA fees? Most likely, yes, a portion of these fees may be deductible.
In your state, there may be a licensing requirement for your rental property. These are also deductible, so keep track of all licensing associated costs.
You may be subject to local taxes that are deductible. Most real estate owners pay local property taxes in one form or another. Your state or county is probably charging this, so double check if you aren't sure. Another tax you may pay is an occupancy tax, which can vary city by city, generally charged in vacation locations. Wherever your rental property is located, familiarize yourself with local taxes you pay and be sure to claim your deductions.
If you contract a vendor to regularly service your property or help professionally, you can deduct these expenses. Here's an example list of professional services you can deduct:
- HVAC maintenance and repair
- Legal fees, eviction
- Pest control
- Grounds maintenance
- Tech support
- Office equipment maintenance
- Real estate investment advice
Depending on how you structure fees for your renters, you may pay for the utilities, like water, gas, electric, sewer, yourself. These costs are deductible. You can even include other expenses in this category if you pay for them, like Internet or television costs, private trash services, and recycling costs.
For more on landlord deductions, head over to our article on equipment and supplies deductions. Keep in mind that the deductions listed above are generalities, and you should consult a tax professional for your specific situation.
What other tips do you have for landlords at tax time? Leave a comment below. We'd love to hear your thoughts or pieces of advice on this topic.
Tax Deductions For Landlords: Every Landlord's Tax Deduction Guide
Form 1040, Schedule E, Supplemental Income and Loss: Tax Season 2020
The Tax Implications of Becoming a Landlord: Is It Worth the Deal?