It's that time of year again. The time of year when you begin to scrutinize your expenses from the previous year and search for every deduction that you can possibly take on your rental properties. I know from personal experience that this can easily become a stressful process. The good news is that there are actually many deductions you can take to help ease your tax burden. Let's take a look at the most common.
This is typically the largest single deductible for most landlords. For instance, if you owe a mortgage on your rental property, you can deduct the interest that you pay on that loan. Also, if you have taken out a loan in order to improve the property, that interest is deductible as well. Have you charged any items or services related to your rental activity to a credit card? The interest is deductible.
You cannot fully deduct the cost of your rental property in the year in which you purchased it. Rather, the cost is deducted through a process known as depreciation over a period of several years.
No matter how hard you work to keep your rental property in good condition, it is going to require repairs. Fortunately, the cost of those repairs can be deducted. Examples include repairing floors, repainting, replacing windows, etc.
This one can be a bit tricky and you do need to meet certain requirements, but you may be able to deduct the cost of a home office. In order to qualify, you will need to have a space that is devoted exclusively to your work.
Wages for Independent Contractors and Employees
Do you ever hire someone to handle services for your rental business? If so, you can deduct their wages as a cost of doing business. This deduction applies regardless of whether the individual actually works for you or works as a contractor.
Theft and Casualty Losses
If your property experienced damages or losses due to theft or an event such as a flood or a fire, you may be able to deduct a portion or even all of your loss. The amount that you can deduct will vary based on the percentage of the property that was damaged as well as whether the relevant loss was covered by insurance, but it is certainly worth checking into.
The premiums that you pay for practically any type of insurance related to your rental business can typically be deducted. Common examples include theft, fire, and flood insurance. If you have landlord liability insurance, that is deductible as well. Also, if you have employees and provide workers' compensation insurance and health insurance, you can deduct those premiums.
As knowledgeable as you may be about the rental business, from time to time, you need the advice and assistance of a professional. The fees that you pay to accountants, attorneys, real estate investment advisors, property management companies, and any other professional are deductible.
Remember to always check with a professional tax advisor regarding your situation.