Do you own rental property? According to the National Association of Realtors, rental properties make up nearly a third of all homes sold in the US. That's a lot of landlords! But owning rental property isn't just about collecting rent. It's about managing finances, too.
Understanding the tax rules and taking advantage of available deductions can significantly lower your taxable income and keep more of your hard-earned rental income. This article explores seven essential tax write-offs to help you navigate deductions and turn your rental property into a tax-saving machine.
What are the 7 Essential Tax Write-Offs?
1. Mortgage Interest
The IRS allows you to deduct mortgage interest on your rental property throughout the year, reducing your taxable income. Unlike some deductions, you don't have to depreciate the property first. It applies to residential rental properties only, and the interest must be on a loan secured by the property.
Rental income counts as gross income. So, maximizing deductions lowers your tax bill. You can't deduct personal use of the property, but most repairs and property taxes are fair game.
2. Property Taxes
Property taxes paid on rental property are another sweet tax perk for landlords in rental real estate. The IRS allows you to deduct them on your tax return. This benefit applies to all rental properties, not just residential. Unlike personal property taxes, property taxes are considered an ordinary and necessary business expense.
3. Repairs and Maintenance
Repairs that keep your rental property running smoothly qualify as tax-deductible expenses for landlords. The IRS considers them ordinary and necessary business expenses. This applies to repairs that fix wear and tear, not improvements that increase value.
Don't confuse repairs with capital expenditures like a new roof that you depreciate over time. Tracking repair costs meticulously helps maximize your deductions and minimize your tax bill.
4. Depreciation
As outlined in IRS Publication 527, landlords can deduct depreciation expenses for property used in their rental business. This includes assets expected to last more than a year, such as buildings or furnishings. The IRS allows actual expenses or standard deductions, providing flexibility to landlords.
5. Management Fees
Management fees are payments to a company that handles tasks like finding tenants, collecting rent, and repairing your rental property. The IRS considers them a qualified tax write-off. They're seen as a necessary expense to generate rental income. Deducting these fees reduces your taxable rental income, potentially lowering your overall tax bill at tax time.
6. Insurance
Owning rental property comes with risks. Insurance premiums protect against those risks, like fire, theft, or tenant lawsuits. The IRS views these premiums as necessary business expenses since they safeguard your income source.
7. Travel and Other Expenses
Travel expenses related to managing rental properties are eligible tax write-offs according to the Internal Revenue Service (IRS). Travel expenses, such as mileage for property visits or trips to purchase supplies, count as rental expenses.
These expenses are deductible as they apply to business activities related to your rental property. Whether you deduct actual expenses or use the standard mileage rate, the IRS allows these deductions to offset taxable rental income.
Further Reading: Calculating and Understanding Rental Property Depreciation: A Comprehensive Guide
How to Navigate Tax Deductions for Landlords Effectively?
Utilizing IRS Publications for Rental Property Taxes
Navigating rental property taxes can be easier with IRS publications. These free resources, like Publication 527, explain how to handle property taxes as a landlord deduction.
Since property taxes are considered an ordinary and necessary expense, the IRS allows you to deduct them in full from your rental income. This lowers your taxable income, potentially reducing your overall tax bill.
Understanding Schedule E for Reporting Rental Income and Expenses
Schedule E is an IRS form that reports income and expenses from rental properties. It helps you declare all the money you count as rental income, such as rent payments, security deposits, and the costs of maintaining the property.
Think of it as a way to show the IRS your net income after accounting for deductible expenses like property taxes, mortgage interest, repairs, depreciation, and the wear and tear on the property. This is a key form for landlords to report rental activity accurately.
Consulting with Tax Professionals for Maximizing Deductions
Consulting with a tax professional is a smart move to maximize your deductions. They can help you identify opportunities you might miss, like depreciation strategies or specific expenses you can claim. Tax professionals stay up-to-date on the latest tax rules and can ensure you claim everything the IRS allows, potentially leading to a lower tax bill come filing time.
Further Reading: What is Rental Income Tax? Understand What Tax on Rental Income for Rental Real Estate Owners
Conclusion
Several key strategies can maximize your deductions in tax write-offs for rental property. You can depreciate property over time, allowing you to deduct a portion of its value annually. Also, property taxes and state taxes paid to the government can be deducted, providing further relief.
It's crucial to report rental income on your tax return, but you can also deduct expenses incurred in the process, such as maintenance, repairs, and insurance premiums. IRS says rental property deductions include mortgage interest, utilities, and property management fees.
How can Taxfyle help?
Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.
At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.
