If you’re a landlord of one or more rental properties, chances are you’ve experienced a small headache or two. While being a landlord can come with hassles, it can also include significant tax perks which can help to deliver more bang for your buck than other investments. If you own a rental property or are considering doing so in the future, be aware of the following deductions which can help to maximize your after-tax profit.
Interest is almost always chief among a landlord’s largest deductible expenses. Interest related to payment of mortgage loans, property-improvement loans, and credit card use (so long as purchases are used for rental activities) are all eligible for deduction.
2. Professional Services
It’s not uncommon that landlords enlist the help of other professionals, including accountants, property management companies, real estate agents, and so forth. Costs for these services (and many others) can be deducted as rental-related operating expenses.
3. Special Income Deductions
Following the 2017 Tax Cuts and Jobs Act and depending on how the property is owned (for example through a S Corporation or LLC) owners may be able to deduct as much as 20 percent of their rental proceeds, 2.5 percent of the initial outlay for their rental property, and 25 percent of their employee costs.
The costs for reasonable repairs to a rental property are fully deductible, provided they’re claimed within the year they occurred.
5. Use of Personal Property
Using the de minimis safe harbor deduction, landlords can deduct the cost of personal property (valued at less than $2,000) that they might use in a rental unit. (Examples of this kind of personal property include major appliances or lawn equipment.)
The IRS doesn’t permit a landlord to deduct the actual cost of an apartment unit, house, or other rental property in the same year in which they purchased it. Landlords recoup their costs through real estate depreciation, which entails deducting a percentage of the property’s cost over multiple years.
7. Home Office
Whether a landlord owns or rents their property of residence, they can deduct home office expenses. This deduction can be applied not only to dedicated work-space within a landlord’s residence, but also to any other space outside their home used for conducting rental-related business.
8. Driving Expenses
It’s not uncommon that landlords often need to drive to their rental properties to attend to a problem, show a prospective tenant around, or visit a hardware store to purchase supplies for repairs. Fortunately, rental-related driving expenses are tax deductible.
9. Employees and Independent Contractors
If you hire another person to help you run your rental business either as an employee or a contract worker, the IRS allows you to deduct some or all of their wages as a business expense.
10. Insurance Expenses
Premiums paid for rental-related insurance are typically tax deductible. Fire, theft, and flood insurance are all eligible, as well as landlord liability insurance.
If you’re a landlord, taking advantage of as many of these deductions and tax benefits can help make your rental business profitable and keep your tax bill as low as possible. We are here to help you make the most of every eligible deduction. No matter how complex your personal tax situation may be, at E-file.com you’ll find what you need for successful filing and a fast refund.