If you are a rental property investor or a landlord, you’ll be pleased to know that there are several strategies to save on your taxes this year. Rental properties offer numerous deductions that help reduce your income tax.
Reporting Rental Income is a Must
As a rental property investor and/or landlord, you are required to report all of the rental income that you make on your property or properties. This is more than just the income that you receive from your tenants every month. All of the following counts as “rental income”:
- Rent – All of the money that you receive for rent from your tenants is considered to be taxable and it is taxable in the year that you actually received it. This means that any past due amount you receive in a given year counts as that year’s income and must be reported. Additionally, any advance rent that you receive in a given year counts as that year’s income and must be reported – even if it is rent for a year to come.
- Expenses Paid by Tenants – If a tenant pays for something that they are under no legal obligation to pay, you must include that as income when you report to the IRS. You may – on some of these expenses – actually deduct the amount that was paid by the tenant as an expense on your rental.
- Services Offered by Tenant – Let’s say that one of your tenants trades labors for their rent, you must include the fair market value of that labor as income, but you may deduct it as an expense, too. An example would be if the tenant paints the exterior of your rental property. If that work would typically cost you $1,500, you must report the income – first – as $1,500, and then you could turn around and deduct the expense.
- Security Deposits – As a rental property investor/landlord, it is important to understand that security deposits are typically not taxable. This is because of the fact that when you receive the deposit it is with the intent of returning it to the tenant when their lease is up. However, if you use that security deposit to make repairs or as an advance rent payment, it is then considered to be income and should be included as such in your taxes.
What May Be Deducted on Rental Property?
In addition to those items listed above, there are many deductions that may be made on rental property on this year’s taxes. Below, we have outlined these deductions and included a brief explanation of each:
- Deduction of Mortgage Interest – If you obtained a mortgage of $1 million before December 16th of 2017 or $750,000 after that date, you may deduct the interest on that mortgage. The interest on rental property would be deducted as a “business expense”. You will receive an IRS Form 1098 and report this deduction on Schedule E.
- Depreciation – In short, this means you deduct the costs over its life where it is considered to be “useful”. Your rental property must meet certain criteria. This includes you owning it, using it to produce an income, it has a useful life, it lasts longer than a year, it was not disposed of within the same year of using it.
- Improvements – These are acts that add value to a property. Examples of those that may be deducted include adding a garage, the placement of a new roof, and even the integration of a patio.
- Repairs – These are acts that ensure that your rental property remain in optimal condition. Examples include fixing broken plumbing components, repairing electrical issues, and even painting. These are deductible.
- Property Taxes – It is possible to deduct the property taxes that you may each year on your rental property. In some instances, you may be able to deduct the entire amount that you pay. You must consult with a bookkeeper when it comes to this deduction.
- Expenses for Travel – If you have to travel in order to obtain rent from your tenants or to maintain your property, you may deduct the associated travel expenses. You may opt to deduct the actual expenses or you may utilize the standard in the mileage rate.
- Advertising – If you own and operate a website that advertises your rentals, you may deduct this. In addition to this, you may deduct any other type of advertising expense.
- Contractors and Maintenance – If you utilize the services of any contractors and/or any individuals for maintaining the rental property, the lawn, or even property management specialists, you may write all of this off on your taxes. In the same respect, if you have employees that work for you, you may also deduct their earnings as a business expense as a rental property investor.
- Home Office – As a rental property investor, it is possible to writer off any home office expenses that you have. This may include the purchase of electronics for the home office, ink, internet access, and even your phone expenses – if you utilize the phone for work.
- Premiums on Insurance – If you maintain insurance on your rental property, you may deduct the premiums that you pay on that insurance. This includes homeowner’s insurance, flood insurance, and more.
- Professional Services – When you have rental property, it is quite likely that you will enlist the assistance of various types of professionals to assist you throughout the year. These include property management professionals, accountants, tax professionals, and attorneys. Any time that you utilize a professional for assistance, you will be able to write those services off as a deduction. Just be certain that you only write off professional services that relate to your rental property and not services that you use for personal business.
- Utilities – Chances are, you will incur some utility expenses on your rental property investment. Perhaps you include the electric, gas, and/or water to your tenants. Whatever expenses you incur as a result of the utility expenses that you are responsible for are expenses that you are able to write off on your taxes this year.
- Personal Property – Do you have items such as furniture pieces or appliances that you use in your rental property or allow your tenants to use? If so, you may be able to write your personal property off as a deduction on your taxes this year. Be sure to consult with your tax professional to determine what may be written off and what may not be written off. Each individual situation is different.
- Deductions for Condominiums – If you rent out condominiums, there are several types of deductions that you may write off on your taxes this year. These include dues, assessments, repairs, interest, taxes, and depreciation. You will not be able to deduct any funds that you have placed into capital improvements, though.
- Cooperatives – If you rent out a cooperative apartment, all associated expenses of that unit are legally deductible on your taxes this year. This includes fees and other monies paid to the housing corporation that actually oversees the cooperative. In some instances, you will have to add any money you spent to improve the apartment to the cost basis within the stock of the corporation and that will actually reduce the amount that you incur on capital gain if/when you elect to sell the cooperative. You will need to work with your bookkeeper to determine what may be written off.
Other Losses
There are certain types of losses that occur to rentals. These include those from natural disasters and those that occur from criminal activity. Natural disaster losses include floods, earthquakes, fires, tornadoes, and hurricanes. Those relating to criminal activity include theft, criminal mischief, and – in some cases – fire.
If you are a rental property investor and you experience any of these types of losses, you may be able to write off associated expenses on your taxes this year. Be certain to document all associated losses and track any expenses associated with each of those losses and/or events.
Contact Us Today
If you want to maximize the amount of write offs that you have on your taxes this year as a rental property investor or landlord, we recommend that you contact us today. We have a property management team that provides comprehensive services to you. We take the “work” out of your property investments. We also assist with the filing of taxes and other related services. We put your property investments on auto pilot. In addition to this, we offer maintenance, lawn care, tenant services, and more. If you have an interest in maximizing the potential of your investments, contact us now at Pioneer Property Management by calling the following number: 720-839-7482
