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Investment Property Tax Deductions for Landlords

1303 views March 4, 2024 Karina Jugo 2

Tax deductions for landlords are a significant source of savings, which explains why they are on every landlord’s mind this time of year. Fortunately for you, we’ve put together the most comprehensive guide on the internet!

Let’s start by talking about the two big ones.

Mortgage Interest: The Biggest of Tax Deductions for Landlords

Unless you’ve already paid most of the mortgage, you’re likely paying thousands of dollars yearly in interest, right? That’s hard to swallow, even if you’re making a positive ROI on your property.

The good news is not all of that interest is a loss. You can deduct the amount paid on your taxes, which can lead to some massive savings, especially if you own multiple homes!

Here’s something else you may not realize—you may be able to deduct interest paid on a business credit card used for home maintenance or services. And considering the high-interest rates on most credit cards, this is a huge benefit.

tax deductions for landlords

Depreciation: Your Second Largest Investment Property Tax Deduction

When a business owns a physical asset, it depreciates over time. That is, the book value decreases every year because the asset gets outdated and worn out.

You can depreciate the value of your rental property because it’s a physical asset, right? Even though you’ll need to consider the home’s depreciated value if you sell it (as it is considered in the capital gains equation), the annual depreciation will help cut back on your payouts to Uncle Sam.

These are the two biggest deductions for most landlords. Fortunately, there is a lot more to look into with your tax professional.

Car deductions

Travel is a necessary part of property management, and depending on the location of your rentals, you might spend more time than you’d like in your car. You can deduct the cost of car maintenance and fuel from your tax burden, with the exception of travel to and from your primary residence and work.

As with other deductions, you can choose between an itemized and a standard deduction for car expenses. If you choose to itemize, you’ll need to keep careful records of all car expenses for the whole year. If that’s not your style, you can keep track of how many miles you travel for work and use the standard mileage rate. The 2018 rate is 54.5 cents a mile for business travel.

Casualty and theft losses

If something is stolen or damaged, you may be able to claim it on your taxes. You may not be able to claim the entire value, but this little investment property tax deduction can add up over time and help relieve the pain caused by such a loss.

Advertising costs

Though sites like Craigslist and Zillow are free to use and very effective at filling vacancies, any advertising costs necessary to fill units are deductible. This includes postage for mailers, listing fees, and other costs as necessary.

Property management fees

If you own property but don’t manage it yourself, any fees you pay for property management services are entirely tax deductible.

Business meals

Though office liquor cabinets have mostly gone the way of Mad Men, the cost of eating and drinking while discussing a business matter is partially deductible. If you keep careful records and discuss business over the table, you can deduct 50% of the cost of the meal.

Utilities

If you pay some or all of the cost of utilities for your tenants, those expenses are tax deductible. This includes electricity, gas, other heating methods, water & sewer, and trash pickup. Until the internet becomes a public utility, you can’t deduct the cost of picking up the tab for internet access.

Employee Salaries and Related Expenses

If you hire employees to help run your property management company, their wages, social security contributions, health insurance costs, and other benefits are deductible. This applies to all employees and independent contractors, a person who is not an employee but supplies services for your business.

Contractor Costs

You may not have your own employees if you run a smaller operation. Instead, you rely on contractors to do most of the repairs. This is where Form 1099 comes in and it is the IRS’s way of ensuring that everyone’s income tax is taken care of accurately.

If you don’t issue an 1099 to your contractors, there can be penalties and disallowances for the amounts that have been paid. It’s important to be sure to comply with all the filing requirements. Not only is this the law, but it’s also just good business ethics to help your contractors better handle their own taxes in a timely fashion.

Insurance Premiums

Insurance on rental properties typically costs 15 to 25 percent more than homeowners insurance for an owner-occupied property, but it’s a deductible expense! If you work out of a home office, you can also deduct a portion of the insurance for your primary residence.

Rent for Equipment and Tools

If you rent vehicles, tools used for maintenance, a giant bounce house for your yearly company party, or other business-related items, the money paid in rent is tax deductible as a business expense.

Where to Find Investment Property Tax Professionals

Even though you could do your own taxes, we recommend hiring a pro. The American Institute of CPAs, the National Association of Enrolled Agents, and the National Association of Tax Professionals are all great places to start. There is also a sort of Zillow for accountants you can find at Accountantfinder.com and CPAdirectory.com.

Remember, whoever you hire to help you to prepare your landlord taxes needs to know about real estate.

Conclusion

There you have it—more than enough investment property tax deductions to make a huge dent in your tax bill. And considering that’s the highest expense most of us ever have, I’m sure it’s a relief!

While we’re on the topic of saving money, I also wanted to point out that RentPost offers a top-quality product at a very affordable price. Whether you are managing one unit or a few dozen, our property management software will streamline the entire rental process for you and your tenants.

Authors

  • Karina Jugo

    Karina Jugo is a content administrator at RentPost who works directly with real estate and property management experts to create resources and guides for property managers. She has more than 15 years of experience in content research and writing for various industries.

  • Jacob Thomason

    Jacob Thomason is the CEO and co-founder of RentPost, software platform providing property managers, landlord or owners with the tools necessary for property management. Jacob is a software entrepreneur with with a vast array of expertise ranging from business concept design to software architecture and development. He is running RentPost for more than 14 years and helping property managers and property owners.

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