Rental tax deductions are special deductibles given to rental property owners in the United States. It entitles landlords to reduce their taxes by deducting rental expenses from their income.
To qualify for this deduction, you must meet these conditions:
- You are renting out your primary residence for more than 14 days of the year
- You are not actively managing the rental property
- You rent out part of your home, and it is always available for use by family or guests
Landlords who rent out a house, an apartment, or even a room are entitled to rental property tax deductions. Here are some tax deduction ideas that may help you reduce your rental property’s taxes.
1. Rental Property Depreciation
Rental property depreciation refers to the process of deducting the costs of buying and maintaining a rental property. Depreciation occurs throughout the “lifetime” of the property as an income generator, with the knowledge that the property is expected to lose its value over time. This is a valid strategy provided that the property is expected to last for more than one year.
You can claim depreciation for as long as you are the owner of the property, or until you have deducted its total cost. Depreciation cannot be claimed as soon as the property is no longer used to generate income.
2. Interest Paid Related to Rental Property
Many rental property owners take advantage of the mortgage interest (or credit card interest) tax deduction. Mortgage interest can be a major expense for the homeowner, but they can be deducted by landlords on rental properties. This, in turn, reduces their taxable income.
As long as you use your rental home to generate rental income while you live in it, you can deduct the mortgage interest and any occupancy charges from rental income.
For example: if you live in an apartment building and rent out a unit, the mortgage interest and other rental expenses can be deducted from your taxable rental income.
It is important to note that if the rental property is not occupied by any tenant other than yourself, then just your portion of the mortgage interest can be deducted as a rental expense.
3. Property Taxes
Property taxes are imposed on rental properties by the government. The property owner is allowed to deduct property taxes from taxable rental income.
You can deduct the property taxes on a rental property when you file your tax paperwork for your rental income, depending on where the property is and how much it’s worth. Recently, limits have been set for how much you can deduct from your property taxes, but that limit doesn’t apply to business activities on your property.
Manufactured home rental tax deductions can be claimed if manufactured homes are used as rental properties. This could allow the property owner to claim rental expenses, which would reduce the taxable rental income.
4. Property Insurance
Property insurance is the expense incurred in taking out a policy to protect the property against future damage. It can include rental property coverage, liability, and renter’s insurance.
You can deduct homeowner’s insurance premiums paid on rent. In addition, if you maintain both a commercial rental property policy and a homeowner’s policy, only the amount paid for the commercial rental property insurance will qualify as a deductible.
5. Cost Of Upkeep
The rental property owner is allowed to deduct the cost of upkeep. This could be as simple as paying for a gardener or as extensive as replacing the plumbing. The rental property owner can deduct rental expenses as long as they are used to maintain the rental property.
- Repair Costs
Repairs to rental properties include roofing, wiring, painting, appliance repair, and more. The rental deduction for repairs can be used to reduce taxable rental income. In addition, the cost of all the labor to make rental property repairs is entitled for deduction as a rental expense. - Maintenance Costs
Maintenance costs can include lawn care, snow removal, trash pick up, waste management, and pest control, among other things. Basically, any expense that you make for the comfort of your tenants and the improvement of your property counts as upkeep, and is thus deductible.
6. Hiring Costs Related To Rental Property
One of the ways rental property owners can deduct rental expenses is through employment of their staff. For example, if the rental property owner employs a maid for on-call cleaning services, then any wages paid to that individual are tax deductible. That includes any taxes withheld by the landlord during the income tax return filing process.
Another way to deduct rental expenses is through contracted labor for maintenance services. For instance, if a rental property owner has engaged lawn care services at their rental property, then any expenses incurred by the landlord for the service would be considered tax deductible.
Moreover, if you hire a rental property manager to collect payments from tenants and other administrative tasks, you can deduct costs related to hiring the rental manager from your taxable rental income as well.
7. Professional Services
If the rental property owner hires an accountant to consult on rental income taxes, then any costs associated with paying for those services would be tax deductible. The costs associated with hiring an accountant to help file tax returns and do tax-related calculations may be deducted, thereby lowering taxable income.
Other types of professionals that can provide tax-related services would be attorneys or consultants who specialize in tax-related services such as computing taxes owed.
8. Casualty Losses Not Covered By Insurance
Casualty losses are rental property damages due to natural disasters or accidents. If property owners cannot recover rental losses from rental income due to incidents such as earthquakes or fire, then they can claim rental deductions for rental expenses that would have been tax deductible if the damage had not occurred. Casualty losses not covered by insurance are also tax deductible if the rental owner doesn’t have enough insurance coverage.
9. Home Office
If tenants are using the rental property to run an operational business, then rental property deductions can be taken for any rental expenses incurred for this space. This is because the rental property owner is entitled to deduct rental expenses when they are used to maintain the rental property. This applies to any space that is used to conduct business, including a home office. Claiming this deduction can be quite complicated though, so it’s best to consult with a tax professional before filing a claim for this.
10. Other Expenses
It’s important to speak with a tax professional to find out what other expenses are tax deductible. Some rental expenses that rental property owners might be able deduct include:
- Travel Costs Associated With Rental Property Management
One rental property management cost that rental property owners often overlook is the cost of travelling to rental properties. If rental property owners do not live in the rental property’s location, they may incur travel-related expenses such as gas and airfare. - Utility Costs Covered By Landlord
Utilities such as gas and electricity, as well as maintenance fees such as those for garbage services or pest control, are rental property deductions. If the rental owner has any rental expenses related to utilities or rental property maintenance, then these would also be income deductions. - Legal Fees
Legal fees related to rental income tax filing can be deducted from taxable rental income. - Homeowner’s Association Fees
If rental property owners are part of a homeowner’s association (HOA), they may have to pay fees to the association. HOA fees count as rental property expenses and can be deducted to the lower taxable income on a property.
Free Resources To Help You as a Rental Property Owner
Pine Financial Group has been in the business of supporting rental property owners for years, and we have seen many transitions in the rental market. We are always using our experience to help rental property owners manage and grow their rental business.
We offer resources such as free rental property seminars, rental property management training classes, and more. We can help rental property owners learn to take advantage of rental property tax deductions. Contact us for more information.