A couple of weeks ago, we published a post called Keeping Track of Rental Property Expenses, which talked about the importance of tracking and documenting rental property-related expenses. It also gave pointers on how to do this consistently. It occurred to us, though, that perhaps not everyone knows what deductions are allowed when it comes to rental property ownership and, therefore, which expenses to track and document.
Here’s a quick primer on some of the most common tax deductions associated with rental properties. If you’re not aware of these, you may be missing out on some of the benefits of property ownership.
Deductible Expenses Related to Rental Properties
Interest and other fees. Most rental property owners take out a mortgage to purchase the property, just as they do for their home. The interest paid on that mortgage will be one of your most significant deductions come tax time. Loan origination fees and points associated with the loan are also deductible. Credit card interest is deductible for any purchases made exclusively for the rental property during the tax filing year.
Insurance. It would be folly to own a rental property without having it adequately insured. In many cases, you can’t get a mortgage for this type of property without having rental property insurance in place. Because this is a necessary expense, insurance premiums are tax-deductible.
Property tax. Property taxes are a necessity in nearly every state. These taxes can be deducted at tax time. A licensed CPA will help you determine what amount is deductible. You may also have state licensing requirements or occupancy fees, depending on the location of your rental property. These fees are also deductible.
Depreciation. Just as your car depreciates when you drive it off the lot, the same thing happens with rental property. Depreciation is generally deducted over a several-year period. Depreciation on items used to help run the rental business, such as computers and vehicles, is also deductible, as are improvements you make to the property, like a new roof.
Maintenance and repairs. While maintenance and repair costs don’t increase the property’s value, they are necessary to keep the place in rentable condition. These costs are deductible.
Utilities. If you pay for utilities rather than having a tenant pay them, you can deduct this expense at tax time.
Travel. The mileage to and from your rental property is also deductible. Make sure you keep a mileage log and remember to track every trip that’s related to your rental property.
Legal and professional fees. Legal and professional fees related to the maintenance of the rental property are deductible in most cases. Examples include legal fees for the creation of a rental contract or fees paid to a CPA for tax preparation. Business consultation fees may also be deductible. Talk to your accountant to clarify these deductions before claiming them.
Office space. Office space is also deductible, whether it’s a co-working space or a spare bedroom. Office supplies and machinery are also deductible, as is your time spent managing your rental property. Keep a good record of your time; it’s one of the deductions most likely to flag an audit.
Need Help Determining Your Rental Property Deductions?
Adams Accounting Solutions is well-versed in all aspects of rental property ownership. We’ll help you figure out which expenses are deductible and which aren’t so that you get the full benefits of property ownership at tax time. Make an appointment for a consultation today!
