- Repairs: Repairs you make to your rental property are generally deductible in the year they’re expensed. Larger projects classified as “improvements” might need to be depreciated (see #3 for more) rather than deducted, so check with your accountant. Every plumbing, heating, electrical or carpentry repair could be a deduction reducing your rental income.
- Interest expense: Mortgage interest is usually the single largest deduction landlords can take, but it’s not the only type of interest deduction. You can also deduct home improvement loan interest and even credit card interest for property-related expenses.
- Depreciation: This deduction is like a gift of cash off your rental income tax bill, because you don’t actually spend any money in order to receive it. You can deduct a portion of the structure’s cost each year as depreciation (the value of the land is not depreciable).
- Marketing: Whether you advertise your property in local newspapers or magazines or pay to place it on a rental property website, every paid ad you run for tenants is a deductible expense.
- Travel expenses: As long as the primary reason for the travel was related to rental property activity, both local and long distance count toward this deduction.
- Independent contractor expenses: You may be hiring landscapers, painters or exterior cleaners as independent contractors. You can deduct what you pay them.
- Employee expenses: If you hire someone as an employee — as opposed to a contractor — to do maintenance or management tasks, you can deduct their wages and related benefits against income.
- Insurance: You must insure your investment, and if it’s mortgaged, your lender will require it as well. Insurance premiums are deductible — this includes liability, casualty and any other insurance related to the rental property.
- Local property taxes: Real estate taxes are everywhere, but you can deduct the county, city and school taxes you pay on the rental property.
- Theft and casualty losses: Break-ins or property damage from criminal activity or even acts of nature are normally totally deductible. Of course, this is only for expenses outside of insurance coverage, which would include deductibles paid on a claim.
- Legal, accounting and management services: You may be hiring professionals in any of these disciplines, and what you pay them is deductible in the year expensed. If you hire a management company to handle all of the headaches of rental property ownership and tenant relations, Uncle Sam will pay a share of it through a deduction from your rental income tax.
- Offset other investment income: In certain cases, losses from a rental property can be used to offset income from other investments. Why would you lose money? If your depreciation deduction is substantial, it can wipe out a lot of real income without you spending any extra money. You may be enjoying a great positive cash flow, but combining mortgage interest and depreciation you could show a paper loss.
Here are a dozen key tax benefits for rental property owners:
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