While the amount may not seem significant to some, every property owner knows that the tax deduction allowed for rental property can make a significant difference on the bottom line. Those who own rental property should be sure to take advantage of the tax benefits of being a landlord.
Some of the common expenses that can be deducted when figuring income taxes are:
Mortgage interest. Payments made to a lending institution for real estate loans usually include principal (part of the amount borrowed) and interest (charges for loaning the money). Rental-property owners can borrow to purchase property or to improve property. In addition, interest on credit card payments may be deductible if the purchase was strictly for the rental property. Rental-property owners should know, from the start, that interest expense must be at the top of the deductible list.
Owners of rental property should take care to reap the benefits of depreciation of property. In most cases, this deduction is available after the first year of ownership and generally continues for 27 years. Property owners should consult with a tax adviser to make sure that depreciation is handled correctly.
Rental-property owners know that keeping up with repairs is one of the major tasks of being a landlord. But repair costs are deductible for the year the costs are incurred. For example, if it is necessary to put new tile on the kitchen floor of a rental property, refinish the walls with new plaster or drywall, or replace old/broken windows, the labor and materials cost is deductible. These repairs must be necessary for the daily operation of the property and should not be improvements made to enhance value (capital improvements). Again, it would be wise to consult with a tax expert to make sure this deduction is taken properly.
Some rental-property owners forget about the travel expense of owning property and miss out on what can be a significant deduction. If the owner must travel to the rental property to meet with tenants or to make repairs, for example, the travel expense may be deductible. Travel expenses incurred for visits to plumbers, electricians and contractors can also be included in tax deduction calculations. If the visit to rental property involves travelling to another city, it may be possible to deduct airfares, hotel bills and some other costs.
Many rental-property owners conduct their business from their home, which allows them to deduct a portion of the home’s square footage for business purposes. Other expenses associated with this home office may be deductible as well (separate phone, office equipment etc.).
Property owners who work with a knowledgeable tax adviser also deduct losses such as flooding and fire damage. The amount allowed for deduction can depend on the insurance coverage terms, and the loss may be figured as partial or full. This brings up another key item in a successful rental-property business - insurance. Landlords are allowed to deduct insurance costs (premiums) for their rental property. Types of insurance include: landlord liability, theft, fire, flood etc.
Property owners should also keep track of fees paid in connection with the rental-property business. This category can include fees paid to real estate advisers, property management businesses, attorneys, accountants etc. Those who own rental property should be aware that some expenses are not deductible under current tax codes. If an apartment remains vacant, for example, the property owner cannot deduct loss of income. New appliances and room additions are not generally deductible. The advice of a good tax expert is essential to a successful rental-property business.
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