Landlords and real estate investors can deduct many taxes. In this article, you will learn about 22 tax deductions available to landlords and real estate investors.
Every year, a large proportion of landlords or real estate investors pay more taxes on their rental revenue than they have to.
Why some rental property owners pay more taxes than others? What can be the exact reason behind it?
Because they fail to take the advantage of all the tax deductions available for landlords and real estate investors.
What expenses landlords can deduct? It is a question of many rental property owners who are not aware of the several tax deductions available for them.
Real estate investment offers more tax benefits than almost any other investment. It is an absolute fact that every rental property must know.
Rental property owners or investors can deduct several expenses. And earn more profits on a rental property.
There are several tax benefits for rental property owners and real estate investors. Here, we are providing you 21 tax deductions available for landlords and real estate investors.
22 Tax Write-offs for Rental Property Owners and Investors
1. Rental Property Depreciation
The cost of rental properties that have a useful life of one year or more can be deducted over a longer period. This is known as property depreciation. Hence, a rental property owner can depreciate the costs of owning the property over a period.
According to the IRS (Internal Revenue Service), a residential rental property has a useful life of 27.5 years. Hence, the depreciation period for residential rental property is 27.5 years. You can figure out the annual depreciation amount (expense) by dividing the property’s cost basis by 27.5.
You can deduct the annual depreciation expense from your annual income. This will further allow you to reduce the amount of income tax.
2. Losses from Theft or Damage to Property
Can landlords deduct losses from theft or damage to their rental properties? According to the law, the itemized deduction for personal casualty and theft losses is not permitted. But rental property owners can still deduct the losses from such losses, as business expenses.
3. Interest on Mortgage Loans & Other Expenses
All interest expenses that are associated with the capital used to buy rental property are tax-deductible. This category of deductions is the single biggest tax-deductible expense for landlords and rental property investors.
Tax deduction of interest expense is not only meant for mortgage loans to buy a rental property but also for other interest payments. Landlords can claim for deduction on interest payments on personal loans and credit cards used for property improvement and buying rental-related goods or services.
All the insurance premiums paid for your rental activity are tax-deductible. You can deduct the premiums paid on landlord liability insurance and homeowner’s insurance. Besides, you can deduct the premiums paid on fire, theft, and flood insurance for your rental property. You can also deduct the costs of health insurance and worker’s compensation insurance if you have employees as a part of your rental business.
5. Ordinary Repairs
The costs of ordinary repairs, such as painting, fixing leaks, fixing the hot water, plastering, fixing gutters or floors, patching a roof, and replacing broken windows are tax-deductible. Keep in mind, these costs can be deducted in the tax year in which they are incurred.
6. Cleaning and Maintenance
You can deduct the expenses paid on fees associated with cleaning and maintenance services. The costs of pest control services, lawn care, trash removal services, and cleaning services are tax-deductible.
7. Property Taxes
If you own a rental property then it is more likely that you pay property taxes. In most cases, landlords can deduct the costs of rental property taxes as an expense. They can deduct the costs that they pay toward local taxes, such as state & local income taxes, personal property tax, sales taxes, and homeowner property taxes.
8. Property Management Fees
It is one of the best practices to hire a property manager for a complete property management solution. The costs of availing property management services are tax-deductible. Rental property owners can deduct the costs of property management fees, such as monthly percentage fees, tenant screen fees, property advertising fees, and any other fees the property manager demands from you.
9. Legal, Accounting & Professional Services
Apart from the costs of property management services. Landlords can write off fees paid to accountants, legal advisors, real estate investment advisors, real estate agents, or any other professionals.
Expenses made on water, gas, sewer, heating, trash removal and other utilities for a rental property are ordinary expenses. These all expenses can be deducted. You can take the advantage of the tax deduction on expenses made on utilities if your tenants are not responsible for paying the utilities’ bills.
11. Home Office Allowance
Home office allowance is a little-known tax deduction for several rental property owners. But it is important. If you have created a part of your home as your office for running your rental property business then you can avail of the tax benefit. But be careful. You will be able to deduct the expenses made at the home office after the property verification is done by authorities.
12. Employees and Contractors
The costs of hiring a residential manager or any employee to handle your rental business can be deducted. Besides you can deduct the costs of hiring any independent contractors such as a pest control service provider, cleaning service provider, or handyman.
13. Tenant Screening
Tenant screening is the process that provides you a good and responsible tenant. The process includes tenant credit reports, background checks, eviction history reports, financial & income verification, and identity verification. To find out these reports you may have to pay. If you use a professional tenant screening service then again you may have to pay. All expenses made on tenant screening are tax-deductible.
Rental property owners have to travel from one place to another to show their properties and perform regular property inspections. A considerable amount of money is expended on traveling for rental business-related travel. The good news is that landlords can deduct the costs of travel made for rental business activity. To avail of the tax benefit, make sure your trip is must done on business days. Besides, make sure your travel is between business locations only.
15. Advertising & Marketing
Landlords have to advertise their rental properties to find good tenants and reduce the vacancy rate. Advertising and marketing of rental properties may cost a significant amount of money to landlords. But the good news is that the expenses made on advertising & marketing in the real estate business are deductible. You can write off the expenses made on advertising and marketing of your rental properties.
16. Licensing & Registration
Sometimes landlords need to purchase a rental license along with an inspection of the property. They need to renew the rental license after a certain period. All the expenses made as rental property licensing and registration fees are deductible.
17. Personal Property
Many landlords use the personal property in their rental business. For example, some landlords use their personal appliances, equipment, and furniture in the rental business. The costs of personal property used in the rental business can be deducted using the de minimis safe harbor deduction, within the same year.
18. Pass-Through Tax Deduction
The TCJA had established a new pass-through tax deduction. Partnership, solo-partnership, and corporate entities are now qualified to a “pass-through tax deduction”. Hence, most rental property owners will be qualified for the new pass-through deduction. Unlike a rental deduction, a pass-through deduction is a special income tax deduction. Landlords can deduct up to 20% of their rental income from their taxable business income amount.
Many landlords don’t know the fact that they can deduct the meal costs from the taxable amount. Yes, it is true. Rental property owners or investors can deduct 50% of meal costs while traveling to visit their property. But they cannot take off the costs of the meal when searching or investigating for new rental properties. Landlords can deduct the meal costs in their home market only, defined as the 40-mile radius. Landlords cannot write off meal costs if they eat alone in their homes. They will be able to write off the meals only when meeting with other business contracts, such as contractors, real estate agents, etc.
Education plays a vital role in the further growth of the real estate business. Real estate investors need to spend money on purchasing books and attending classes, meetup events, and seminars for the growth of their rental business. Such expenses can be deducted. But make sure, you already have a rental business. You cannot avail of this tax benefit if you are searching for new properties.
21. Phones, Tablets, Computers, Phone Service, Internet
In the rental business, landlords need to purchase some necessary gadgets and stationery. For example, you may need to purchase phones, tablets, laptops, computers, fax machines, phone service, and internet connections for the growth of your business. It is advised to keep all the receipts that you buy for your business person. These expenses can be deducted from your taxable amount.
22. Legal Forms
Landlords may need to purchase sometimes specific lease-agreement, eviction notice forms, etc. Expenses made on legal forms can be also deducted.
The Bottom Line
These are the top tax deductions for landlords and rental property inventors. We are hope you will take benefits from the pointers discussed in this article.