Owning a rental property is costly. Repairs, advertisements to find tenants and accountant fees are just some of many out-of-pocket expenses you encounter throughout the year. The good news is you can write off these costs on your tax return and recoup some of the money.
Possibly two of the largest deductions you can take are for mortgage interest and insurance premiums. You can deduct both expenses the year you pay for them.
Landlords wear many hats outside of simply collecting rent. Hiring a property manager is an easy way to relieve the stress of running an investment property and the cost is tax deductible.
Taking a DIY approach to managing investment property will save you money short-term, but in the long run, management fees will reduce your tax liability and help you oversee a rental more efficiently.
Rental property owners can deduct fees for legal advice and for other professional services like bookkeeping. For example, this year you can write off fees you paid to an accountant last year to file your tax return.
You can also deduct wages for employees and independent contractors. Say you have an on-call repair person or customer service assistant, their pay can be written off.
Advertisements to get the word out about a vacancy is an operational expense, so it’s another cost that’s tax deductible. Just make sure you keep receipts to backup each advertisement you plan to take as a tax deduction. It’ll be easier to gather the information for the accountant filing your tax return. And you need proof of the expense in case you’re selected for an audit.
According to the IRS, if your home is your “principal place of business”, you’re able to deduct local travel expenses to and from your rental property to collect rent, handle repairs and general maintenance.
If you live out-of-state, you can also write off long distance travel costs when the purpose of your trip is to collect rent or manage the rental. However, you cannot deduct long distance travel if the sole reason for your visit is to improve or renovate your property.
Repairs you make for upkeep throughout the year are tax deductible as well. The repairs that fall into this category are fixes like repairing a leak or repainting. Upgrades to the rental are not included in this category of tax deductions; you have to depreciate the expense instead.
Renovations or improvements are considered capital expenses. You have to depreciate capital expense through the expected life of your property. Examples of improvements are kitchen renovations, home additions or new landscaping.
Keep in mind, every tax scenario is unique. Before taking any of these deductions, speak with a tax professional to find out what will benefit you the most.
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