Tax Deductions for Landlords
Here’s the scoop: You are probably paying too much in taxes on your rental income. There! I said it.
No savvy landlord would ever pay more than necessary for utilities or other operating expenses for their rental properties. But every year, thousands of you pay more taxes on your rental income than you have to. Why is that? The simple answer is you fail to take advantage of all the tax deductions available to you as owners of rental property.
We all know that rental real estate has more tax benefits than any other investment. Often, these benefits make the difference between losing money and earning a profit on your rental property. But let’s face it; tax-deductions are absolutely worthless if you don’t take advantage of them. Here are some tax deductions many of you most often overlook.
Interest. Interest is usually a landlord’s single biggest deductible expense. Common examples of interest that you can deduct include mortgage interest payments on loans used to acquire or improve a rental property. Interest on credit cards for goods and services used in a rental activity are also deductible.
Depreciation. The actual cost of the house, apartment building, or other rental property is not fully deductible in the year in which you acquire it. (Don’t we wish?) These costs must be capitalized and depreciated over the useful life of the asset. Residential property must be depreciated over 27.5 years.
Repairs and maintenance. The cost of repairs and maintenance (provided they are ordinary, necessary, and reasonable) are fully deductible in the year in which they are paid. Examples include fixing leaks, repainting, plastering, and replacing broken windows.
Home office. If you meet certain requirements, you may deduct expenses for your home office from your taxable income. This includes not only the space devoted to office work, but also to a workshop or any other home workspace you use for your rental business.
Employees and independent contractors. Whenever you hire anyone to perform services for your rental activity, you can deduct the amount paid to them as a rental business expense. This is true whether the worker is an employee or an independent contractor. (And yes, this DOES include your children.)
Legal and other professional services. Fees to attorneys, accountants, property management companies, real estate investment advisors, and other professionals are deductible. You can deduct these fees as operating expenses as long as the fees are related to your rental activity.
Insurance. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for a property, as well as a landlord liability policy. If you have employees, you can deduct the cost of health insurance and workers compensation.
Of course, every deduction cannot be covered in this short post. These are only a few of the over 400 tax deductions available to small business owners (read landlords). You should plan a tax strategy session with your tax pro to make sure you are taking advantage of every deduction available to you under the tax code.
Thanks for reading. And feel free to contact me with your own tax questions. Let me know what you think in the comments area below, and hey – tell your friends about us!
Hi Bill,
I really like you’re site a lot. Did you get someone to create it for you?
Thanks for this article. I didn’t even know you had an accounting and tax background. I learn something new every day! =)
Are you going to write an article about dealer status and how it impacts the tax investor’s pay? I’ve heard people talk about it, but it never quite sunk in.
Hi Stephanie! Glad you like the site. Nope, this is pretty much my own doing, so feel free to make suggestions on how to make it better 🙂 And thanks for the idea for the article!