Landlords have all the advantage in the business, increasing their savings. It could be a lot of work but it’s rewarding in the end. One of the responsibilities of landlords is attending to tax season annually. Tax is not really a bad thing especially with of rental property tax deductions.
Rental property tax deductions allow the landlords to tax deduct any valid expense related to a rental property business. There are so many expenses that are deductible for tax. Read them below:
Most of the landlords are using mortgage to buy their properties. The loan interest on the mortgage is the biggest deductible expense they have. To be clear, the only deduction that is eligible is the payment for the interest charges and not the principal loan itself. Other deductible also include origination fees and points that were used to buy or refinance the rental property, unsecured loan interest for home improvement, as well as credit card interest for buying items for the rental property.
Rental Property Taxes and Licensing Fees
Landlords definitely receive rental property tax benefits and that includes deduction of related expenses. The three most common forms of tax benefits for rental property are property taxes, licensing fees, and occupancy taxes.
Taxes on property vary depending on the country or city it resides. Rural areas may only ask for small amount of tax. City properties can be quite high in terms of tax. Property tax is one of the legitimate expenses that is related to the rental property.
A lot of cities are requiring licenses for the rental property. The license is specifically designed for the property alone. Again, licensing fees vary from each state or county, the total area of the property, and number of bedrooms.
This is also similar to sales tax. These taxes differ by state and sometimes vary by city, county or even municipality.
Any form of insurance that landlords get for the rental property business is included in deductions. It applies to basic homeowners’ insurance and liability insurance as well. If the landlord has employees and available health and workers’ compensation insurance, then they are deductible too.
In accounting terms, the definition of depreciation is the reduction of recorded cost of a fixed asset in a methodical manner until the value of the asset becomes zero or negligible. Overtime, the value of rental property lowers because of the wear, tear, and obsolescence. As landlord, you can make a depreciation claim as soon as the rental property enters the “renting” phase.
Depreciation also applies to the value of equipment you’re using to run the business. It includes computer hardware and vehicle. Home improvements are also deductible.
Moreover, utilities used in the operation can be included in the depreciation claim. The deductions can be claimed on the following:
- Phone and internet services
- Air Conditioning Unit
- Heating Bills
- Trash and recycling process
Property maintenance and repair
Improving your rental property, repairing it, and maintenance are all deductible. However, they differ from each other in terms of being handled in the deduction.
They are considered as long –term investment to the rental property and they depreciate over time. The number of years of depreciation of the improvements varies. There are some items depreciating in five years and others last for 20 years.
Maintenance, repair, and cleaning
These items naturally happen for rental property. They are considered ongoing items in the operation. They can be deducted as normal operating expenses. One good example is replacing some shingles lost because of the storm. Another one is replacing worn out carper or repainting the rooms because of normal wear and tear.
Most of the businesses these days need a vehicle to run the operations. If you need to drive to your rental property to show it to potential tenant or repair the property, the mileage is also deductible. There are two ways to deduct your car expenses: the “actual” method or the standard mileage.
The “actual” method is using the percentage of all the actual auto’s expenses used for business while the standard mileage is using a certain rate per mile driven for business purposes. Both ways are requiring the landlord to keep records such date and purpose of the drive, mileage itself, and the odometer readings before and after the business travel.
Since smartphones are popularly helpful these days with anything, you can download apps that will help you keep the record; convenient and easy. Check the Google Play Store and Apple Store for best mileage tracking apps.
Space for business transaction
It doesn’t matter where you conduct your business because it can still be deducted to your accompanying costs. Whether you work in in a commercial property or spare bedroom at home, the square footage is included with the deductions along with the phone line, computer software, printer, ink, and more.
To successfully include this to your deduction, keep the receipts and documentation of the purchases you made. Be sure to keep a record to know the breakdown cost of between business and personal use.
Professional and Legal Fees
Professional fees that are related to rental property can be deducted as well. Using computer software or the help of Certified Public Accountant in preparing the tax return is eligible for deduction. Other professional fees that can help deducting the cost are as follows:
- Lawyer’s fee –lawyers help in overseeing the landlord’s rental paperwork. As a landlord, you can deduct the hourly fees of your legal adviser.
- Real estate agent – these professionals help you to find tenant for your rental property. Their commission can be deducted as well
- Advertising fees – if you have used newspaper, online presence, or even radio ad, you can deduct the fees you shelled out
The fees mentioned above are considered as operating expenses and are eligible for deductions. But legal fees that were used to defend property title or recovering and improving the property is not eligible.