Every year, landlords pay more in taxes than they have to. But the IRS allows numerous tax deductions for rental property and what it terms “real estate professionals”—anyone who spends more than half of their hours in the rental business.
That includes rental property owners and property managers. If you own rental property, you’re losing money if you don’t take advantage of these certain tax deductions.
Top Tax Deductions for Rental Property Owners
Maintenance and repairs
The cost of maintenance and repairs to your rental property is tax deductible. These include all standard repairs such as repainting, replacing broken windows, or fixing leaks.
Larger repair and renovation projects that could be classified as capital improvements—i.e. improvements that add value to your property—are not deductible as repairs, but may be depreciated over several years.
Interest is the largest and most often-overlooked tax deduction for many property owners. Many types of interest are deductible, but the most significant is usually mortgage interest.
If you’re making mortgage payments, then all the interest you pay is tax deductible (the principle on your mortgage, however, is not deductible). You can also deduct interest on credit cards for goods and services related to rental activity.
The actual cost of the rental property you own, whether it’s an apartment building, condo, or single- family home is not fully deductible the year you buy it. Instead, you can deduct a portion of the cost each year over a period of many years.
This is what is known as depreciation. As we mentioned before, renovations and improvements that add value to your rental property can also be deducted this way.
Not all landlords pay utilities for the properties they own. But if you do, those utilities are tax deductible. Some of the most common examples are water, sewer and trash pickup, but in rare cases landlords also pay for gas and electricity.
It’s easy to forget about all the travel that’s required of landlords: you travel back and forth between home and your rental properties, to the bank and hardware store, or to meet with various professional services (attorneys, brokers, etc.).
All that travel is deductible, and there are two possible ways to do it. You can either use the IRS’s current standard mileage rate, or you can keep track of actual expenses, like gas, upkeep, and repairs on a vehicle used specifically for work.
Property owners often end up paying a host of professionals for a wide range of services. These might include property management professionals, attorneys, brokers, accountants, and real estate investment advisors. All of their professional fees are tax deductible.
Employees and contractors
Some landlords manage and maintain their properties on their own. But most property owners eventually end up hiring any number of services, especially as their rental business grows.
Ultimately, you can deduct the wages you pay to any person who you hire to work on your rental property. This includes direct employees, such as a full-time manager or groundskeeper, as well as independent contractors, like a carpenter or repair person.
The premiums on practically any type of insurance related to your rental activity is deductible. Examples include landlord liability insurance, health and workers’ compensation insurance for any employees you may have, as well as fire, flood, and theft insurance for your rental property.
Income taxes are, of course, not deductible. But all other taxes you incur as a result of owning rental property are. These include property taxes, school taxes and special easements or land taxes, all of which are deductible on Schedule E.
Contact us today to learn more about all the tax deductions you could be taking advantage of as a property owner!