Rental Property Tax Deductions: What Landlords Should Know

When you’re a landlord, your savings can quickly get bolstered from the rental income, but there are also a lot of responsibilities to consider. Not only do you need to secure safe housing conditions for your tenants, but you need to obtain proper insurance, pay mortgages, and cover property taxes. All of this can make your current taxation situation more complicated. Thankfully, there are some deductions that you can claim when operating a rental property. The IRS requires that deductible expenses must be typical for the rental industry while also being necessary for the management of your property. Here’s a helpful list of rental property deductions that you can claim on your tax return this year to help you save some green! 


Deducting Your Property Taxes

Every state collects property taxes, and these can vary depending on your property’s size and location. You can find the tax rates in your area by asking a tax professional or checking your escrow summary. You can also deduct any accompanying vacation rental or landlord license fees if your state has any rental licensing demands. It’s important to consider that the IRS limits the deduction of local income and state income, as well as property and sales taxes, to a combined deduction of  $10,000, or $5,000 for those who are filing separate returns and are married. In the case of managing short-term rentals, your city, county, town, or state might charge a kind of fee called an “occupancy tax.” This is very similar to a sales tax, and you can deduct occupancy taxes just the same. 


Deducting Your Insurance Premiums

Before securing a mortgage, lenders can stipulate that homeowners adopt an insurance policy. Fortunately, any form of insurance is seen as deductible if considered ordinary and necessary for a rental property to legally exist. If you have employees that help to manage a rental property, such as in the case of hiring Keyrenter, then your tax professional might be able to write these costs off as business expenses as well. Insurance premiums might be slightly higher in the case of rental properties, but thankfully, landlords can deduct losses from natural disasters that their insurance covers, such as flooding, hurricanes, earthquakes, and more.


Deducting Utilities and Maintenance Repairs 

Every landlord handles utilities differently on every property. If you opt to pay for things such as electricity, water, gas, heating, and AC for your tenant, then these things will also be tax-deductible. If you pay for cable or satellite internet, you can deduct this as well. You can still continue to file these as deductions even if your tenant agrees to reimburse you for these utilities at a later time.

Tax codes in various locations allow you to deduct certain maintenance and repair costs separately, while home  Improvement costs are deductible via depreciation. According to the IRS, these efforts maintain your property’s rentable condition but do not add to the value of the property during the event of a sale. Examples of improvements include additions such as bathrooms, bedrooms, garages, decks, patios, porches, landscaping, AC and heating, interior kitchen upgrades, wall-to-wall carpeting, and other miscellaneous repairs. If you hire a contractor to do the work for you, then you can deduct the labor expenses. This also applies to property managers and property management companies, should you select to hire one. For the handier sort who like to work on things themselves, you can deduct any rental fees for equipment or specialized tools required to complete the job.


How to Claim Rental Property Tax Deductions

As a rule, you should file rental property tax deductions during the same year that you pay its expenses by filling out a Schedule E form. Make sure to keep thorough records of your income and expenses relating to your rental property as the money comes in and goes out accordingly. You can use a Schedule A form to itemize any deductions that are relevant.

Although we’ve covered some of the biggest rental property tax deductions in our list above, it’s a good idea to make sure that you have a qualified financial advisor and tax professional working for you whenever you attempt to fill out any specific deductions to potentially maximize your tax savings. For more information about how to best manage rental properties in a headache-free manner, reach out to us today with a phone call or an email to learn more about our services.