Accounting

Top 11 Deductions Landlords Should Consider this Tax Season

By Ginette February 21, 2022

Starbucks, Amazon Prime, Procter & Gamble, and many other companies have hiked their prices. In the past twelve months, we’ve experienced the largest inflation increase in 40 years. With inflation on the rise, many of us are feeling the financial pinch. It’s nice to know that for landlords, there are a lot of available tax deductions that can help keep money in pockets. Some deductions are pretty straightforward and others much more complex, but they’re generally worth the effort you put in to qualify for them, especially if money is flowing out the door in other ways. Here are eleven deductions to consider taking in 2022:

Professional fees

Fees paid to lawyers, tax accountants, real estate investment advisors, and other similar professionals—whom you pay for services related to your rental property—are tax deductible. If you’ve needed to hire help in these areas, don’t forget to take this deduction.

Property taxes

The housing market has been soaring, and with rising home values, it’s only a matter of time before local home appraisers set your property’s value higher. It’s nice to know that resulting higher property taxes on your rental property will be fully deductible.

Interest

For rental properties that are not your primary residence, your mortgage interest is deductible. While this is generally known, another type of deductible interest to remember is credit card interest. You can deduct interest on credit cards used to purchase business services, materials and supplies.

Insurance

If you have landlord liability, mortgage, hurricane, fire, theft, or flood insurance, be sure to write these off as well.

Depreciation

Some items—like the majority of the cost of purchasing your rental property or capital improvements—must be depreciated over 27.5 years instead of deducted. But there are some things you can depreciate at a faster rate, like new appliances in a rental unit (five years), office furniture and equipment (seven years), and fences (15 years). Be sure to talk to your tax accountant about these items since depreciation can be nuanced.

Utilities

If you pay for electricity, water, gas, or the like for your tenants, you can deduct it. Likely this deduction will be offset, however, if you pass these costs on to your tenant.

Repairs and maintenance

This one can get complicated. Sometimes it’s hard to know if work on your property falls into the repair and maintenance category or the capital improvements category. A general rule of thumb is, if something you do restores your property to its original condition, it is a repair. Regularly servicing and maintaining your property is also important to prevent things from becoming a problem. So be sure to deduct maintenance costs that regularly recur, like tree pruning, gutter cleaning, landscaping, HVAC maintenance, and the like.

Capital improvement

Unlike a basic repair or maintenance, if you make a change to your rental property that significantly improves or extends the useful life of your property, it is considered a capital improvement. Examples include renovations (complete basement makeover) and installations (new roof, new HVAC system).

Home office

These days, only a business owner can deduct his or her home office. Fortunately, as a landlord, you fit the bill. If you have a dedicated space in your home that you use only for business, you can deduct an equal percentage of the space from your housing bill.

Travel

For local travel to and from your rental properties, you can deduct some of your mileage, so be sure to document how many miles you drive and what a trip was for (e.g., showing the property to prospective renters, meeting a contractor, picking up needed supplies). You can also deduct long-distance travel, but you need to be able to prove the travel is mainly for business purposes. The IRS will be looking to see that your travel costs are reasonable.

Meals

If you are traveling to a property you already own and get some food on the way, you can deduct 50% of the cost of that meal. It might seem like a pain to keep documentation on every purchase, but you can find a place to easily store it, like TenantCloud’s tracking tool. It’s important to keep documentation on your deductions in case you are audited by the IRS!

As always, consult a tax professional before taking these deductions to be sure you understand their nuances. A professional can help you figure out if you qualify for a deduction, or they can help you build a defensible case for taking certain deductions. Nobody wants to be audited by the IRS. If you are, though, be sure you are prepared.