10 Rental Property Tax Deductions You Should Know

By: ROS Team

Some landlords take pride in owning real estate, while other landlords consider the monetary benefits. Whatever your reason for buying property, you should always want to maximize your benefits. After all, you have invested a substantial amount of time and money; you should get something back in return.

So, how can you maximize the return on your investment? One option is to know which tax breaks are available to you as a property owner so you can take advantage of them.

Below are Ten Rental Property Tax Deductions that Can Make Owning your Property even more Profitable:

1) Interest Rate
2) Depreciation for Rental Units
3) Rental Startup Expenses
4) Expenses Incurred for Finding Rental Property
5) Reasonable Advertising Expenses
6) Education
7) Entertainment
8) Home Office
9) Utility Bills
10) Energy Efficiency

1) Interest Rate

Interest is typically the single largest deductible expense from the rental property tax deductions worksheet. Landlords can deduct mortgage interest payments on home loans or interest charged on credit card purchases for goods or services used for rental property upkeep.

The Tax Cuts and Jobs Act limited the tax write-offs for landlords who have rental income of more than $25 million. But, if landlords agree to depreciate their rental property over 30 years instead of 27.5 years, they can avoid that limit.

2) Depreciation for Rental Units

The market value of a rental unit or apartment building is not fully deductible from the rental property tax deductions worksheet in the year in which you pay for it. Rather, landlords can get the money spent on real estate investments back through depreciation. That means the landlord deducts a portion of the cost of the property as rental property repairs tax deduction over several years.

3) Rental Startup Expenses

If you plan your rental property business, you might be able to deduct a portion of your startup costs. Landlord deductions for business startups include accounting fees, new employee training fees, office furniture, and staff salaries. Although most startup costs are considered capital expenditures, rental property tax deductions may account for as much as $5,000 of those costs, even if startup costs exceeded $50,000.

4) Expenses Incurred for Finding a New Rental Property

Tax write-offs for landlords may also include costs incurred while looking for a new rental property. Landlord deductions may also include airfare, hotel fees, and/or car rentals, given that they are all necessary expenses. However, to qualify for rental property tax deductions, the primary reason for travel must be business, and you must spend half of the time during the trip conducting business related to locating a new property.

5) Reasonable Advertising Expenses

There are plenty of options for landlords’ tax reduction if you look for them. Landlords can deduct advertising expenses incurred when advertising rental units. This typically includes the cost of postage for mailers, classified ad space, money spent to advertise the space on social media platforms, or signs. You can even deduct the costs of building a new website from landlord tax.

6) Education

You can also deduct continuing education and training from your taxes. There are many stipulations for doing this, so research what’s permissible to deduct as a tax write-off considering your rental property situation.

For rental property tax deductions, a simple description of the expense should be enough, which could be:

Books;
Networking events;
Coaches;
Webinars;
Conferences; or
Repairs and improvements.

Any activity you complete that adds value to your rental property is considered an improvement and, thus, an asset. Since that value adds up by the improvements you make as a result, it can be deducted annually as depreciation. Similarly, anything done to enhance the quality of the rental experience can be categorized as repair and deducted.

The total expense of rental property repairs is fully deductible in the year in which repairs were completed given the repairs were necessary and reasonable in cost. Repairs to floors or gutters, repainting, plastering, fixing leaks, or replacing broken window panes can all be included on the rental property tax deductions worksheet.

Other Examples of Improvements or Repairs:

Replacing a roof or repairing a hole in the roof;
Renovations;
New hardwood floors;
Adding an air conditioning unit; and
Adding additional dwelling units (ADUs).

You can quickly differentiate between a repair and an improvement. Repairs restore things to their original condition, while an improvement adds value to the property.

To determine whether or not a repair or improvement will qualify for a depreciation deduction, ask yourself the following:

Does it fix a problem that was there before you purchased the property? Does it structurally make the property better or bigger?
Are you using the property in a way other than how you planned to use it before the purchase and made changes to adapt to the new utility?
Do you plan to restore the property to like-new condition? Have you already spent money on fixing the damage?

If you answered “yes” to any of these questions, it’s likely a depreciable expense.

7) Entertainment

The Tax Cuts and Jobs Act of 2017 have limited entertainment deductions. You can still take advantage of entertainment deductions from your landlords’ taxes. To deduct entertainment expenses, entertainment has to be directly related to running your rental business. Remember that the amount deducted has to be necessary and reasonable, not lavish.

These may include:

Meals during business trips, seminars, or conferences;
Catering office meetings;
Office snacks, water, and coffee;
Food provided for the convenience of the employer; or
Meals provided at charitable events.

Note: These deductions are valid till 2025 unless Congress passes a law that extends the period. Until then, you can earn these as deductions from landlord taxes given that the events don’t discriminate based on employee compensation and are open for everyone.

8) Home Office

Claiming home office deductions is a bit tricky. That’s why many landlords seem to ignore it. But it can turn out to be extremely valuable and worth considering if you don’t mind the many nuances.

You can deduct expenses like office furniture, tools, or costs like home maintenance or utilities. However, before taking advantage of the deduction, consult with an accountant to be sure you understand the minimum requirements that would qualify you for this type of deduction.

9) Utility Bills

Landlords often have to pay bills for lighting a common area or to provide security for their rental property. There is an opportunity to convert these expenses to tax write-offs for landlords.

10) Energy Efficiency

You might qualify for a tax deduction if you replace old energy-consuming appliances and equipment with smart energy efficient ones, like replacing a 10-year old water heater or 15-year old HVAC. However, before you purchase or intend to deduct tax, consult with an accountant or review the Federal Tax Credits.

What are some Common Rental Property Tax Deductions?

Some common rental property tax deductions include mortgage interest, property taxes, insurance premiums, repairs and maintenance, property management fees, utilities, advertising expenses, legal and professional services, depreciation, and travel expenses related to property management.

Can I Deduct Mortgage Interest on my Rental Property?

Yes, mortgage interest paid on a rental property is deductible. It can be one of the largest deductions for rental property owners and is claimed on Schedule E of the tax return.

Are Property Taxes Deductible for Rental Properties?

Yes, property taxes paid on rental properties are deductible. This deduction is also claimed on Schedule E.

Can I Deduct the Cost of Repairs and Maintenance on my Rental Property?

Yes, expenses for repairs and maintenance on your rental property are generally deductible. However, improvements that add value or extend the useful life of the property may need to be depreciated rather than deducted in the current year.

Final Words

There are several potential tax breaks that come with owning rental property. If you take advantage of these rental property tax deductions, you will realize that a property can be profitable, manageable, and even enjoyable.

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