Owning rental property is profitable, especially if you know how to deduct certain expenses when filing your tax returns with the Internal Revenue Service (IRS). If you receive income from the rent of a dwelling unit, read on to find a full list of deductions you can claim.
Rental Property Deductions – What You Need to Know
It is possible to deduct several rental property-related expenses on IRS tax returns, including mortgage interest, property taxes paid to state and local authorities, depreciation, operating expenses, and costs with repairs and maintenance.
Mortgage Interest
If the owner of a rental unit used a mortgage to purchase the property, it is possible to deduct the loan interest when filing returns with IRS. In many cases, the largest deductible expense in a rental property is mortgage interest.
Please note that this deduction applies exclusively to payments toward interest charges, not to any portion of the mortgage payment owed to the principal loan amount.
Property Taxes
States and local tax authorities collect from property owners. Depending on the property’s location, the amount due on taxes may go up to hundreds of thousands of dollars.
Fortunately, IRS allows rental property owners to deduct taxes paid to state and local governments up to $10,000.
Insurance Premiums
Properties bought with a mortgage generally have an insurance policy. Considering that insurance represents a form of ordinary and necessary expense in a rental property, it is possible to deduct it from federal tax returns.
In addition to homeowner’s insurance and liability insurance, owners of rental properties with trade or business status may deduct the cost of health insurance and workers’ compensation insurance.
Casualty and Losses
Rental properties may be subject to casualties or losses like hurricanes, floods, fires, theft, or other events that cause damage to the property. Like insurance premiums, rental owners can deduct casualties and losses on IRS tax returns.
Depreciation
Dealing with the depreciation of a property is one of the side effects of owning real estate. Several factors lead to a decrease in the value of the rental property, a process referred to as “depreciation.”
IRS provides that rental properties can depreciate for over 25 years, referring to the value of the structure. The agency has a publication called “How to Depreciate Property” (IRS Publication 946), but the best way to navigate this complex topic is to consult with an expert CPA.
Improvements, Maintenance & Repairs
While improvements to a rental property are deductible as part of “depreciation,” certain expenses with maintenance and repairs can be filed separately. The difference between improvements and maintenance is that the latter only keeps the premises in rentable condition, adding no value to the property.
If the necessary improvements or maintenance services require someone to perform them, it is possible to deduct the labor costs involved in the process. Rental owners who prefer a “do-it-yourself” approach may deduct the cost of tools and equipment.
Utilities
Rental agreements have different provisions for utilities. If the landlord opts for covering utilities like gas, electricity, water, HVAC, and internet, it is possible to deduct the amount on IRS tax returns.
Whether the tenant agrees to reimburse the amount at a later moment, the landlord can continue to deduct the amount paid for utilities on federal tax returns and claim the reimbursement as personal income.
Legal & Professional Fees
Owning and managing a rental property is not an easy task, which often requires the assistance of experts in different segments. A landlord may eventually need to consult lawyers, accountants, real estate agents, and other experts to find pro-level solutions for specific demands.
Whenever it is necessary, it is possible to deduct legal fees, realtor’s commissions, advertisement costs, and accountant fees.
Do You Want to Deduct Taxes from Your Rental Property? – Immediately Contact an Experienced CPA
Waste no time with uncertainty. Call Edward D. Quilca, CPA at (786) 310-5582 or email [email protected] to find the best tax-saving strategy for your case.
