We talk about the fact that when you own a rental property, you now own a business. The home is your product, your tenant is your client. You’ve got to keep accurate records, manage expenses and keep revenue coming in the door. As a property manager, that’s our job. Record keeping is a big part of managing a business and when it comes to taxes and deductions, your accountant will thank you for having accurate records because it will make his/her life much easier.
Luckily, the government allows you to deduct some expenses associated with running a rental property. The IRS stipulates that deductible expenses must be ordinary and generally accepted in the rental business, along with being necessary for managing and maintaining the property.
Here are a few tax deductions you can take as a rental property owner. You’ll want to discuss your own personal situation with your tax advisor to determine what makes sense for you.
Most people get a mortgage when purchasing their primary residence or even a rental property. Landlords with a mortgage will find that loan interest is their largest deductible expense
In addition to mortgage interest, you can deduct origination fees and points used to purchase or refinance your rental property, interest on unsecured loans used for improvements and any credit card interest for purchases related to your rental property.
In our area, the property taxes are determined by the County and can be in the thousands annually. There are some IRS limits related to how much the tax deductions can be so it’s important to check on this to make sure you don’t exceed the limit.
Whether you have a mortgage or not, it’s important to have adequate insurance to protect your property and liability. Generally any form of insurance is considered a necessary rental property expenses so it will be deductible. The deduction applies to basic homeowners insurance as well as liability insurance.
Over time, wear, tear and obsolescence lower the value of your rental property and its contents. This process, known as depreciation, is tax deductible. The IRS says rental properties depreciate over 27.5 years (this is structure only- not land). Also, if you have things like computers you need to run your rental business, you could depreciate those. Additionally, if you make a major improvement like putting on a new roof or renovating a kitchen, you can depreciate this too over time. To qualify as a deductible expense, it must be expected to last for more than a year, be valuable to your rental business and lose value over time.
Maintenance and Repairs
Repair and maintenance costs are different from major home improvements and can be deductible in the year they are incurred vs being deductible through depreciation like home improvements. These types of expenses keep the home in good condition and rentable but do not add significant value.
If you hire someone else to do the work, you can deduct the labor costs. The same goes for your property manager expense. Homeowner association and condo fees are also deductible expenses.
In most of our leases, tenants pay all utilities but sometimes utilities are included in the HOA or condo fee in which case you as the landlord are technically paying these utilities since you pay the HOA/Condo fee. So when you deduct that fee, you are also essentially deducting the utility cost. Also, if you pay the utilities in between tenants, you can deduct those costs.
Legal and Professional Fees
Professional fees such as accountant services, advisory fees, attorney fees or Realtor/Property Manager fees can be deducted as they are necessary to successfully operate your rental business.
At the end of the day, there are many allowable deductions related to your rental property and help keep your tax bill down. At RPM, we will help you keep track of important expenses that we know of but you should also keep track of other expenses you pay for and keep detailed records so you can get the most deductions possible.