The Top Nine Tax Deductions for Landlords
Rental real estate provides more tax benefits than almost any other investment. Below is a list of rental income deductions available for you to consider when preparing your taxes:
- Interest – Interest is often a landlord’s single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.
- Depreciation – The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.
- Repairs – The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred.
- Local and Long Distance Travel – Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. You can also deduct certain vehicle expenses. If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses.
- Home Office – Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to 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 their wages as a rental business expense. This applies if the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).
- Casualty and Theft Losses – If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.
- Insurance – You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance.
- Legal and Professional Services – You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
The IRS does scrutinize work related deductions. It’s critical that you check the allowed deductions with a tax professional, and keep the proper records and documentation to back up all of your claims. Visit us at www.b2rfinance.com and follow us on Twitter @B2RFinance.
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