Property owners know that running a successful rental property business requires a number of expenses and costs that can drain your wallet, but when you apply rental property tax deductions to your taxable rental income, you can start plugging the drain.
Landlords who don’t take advantage of these write-offs spend more money in the long run because the IRS requires them to pay more government taxes. Sometimes, landlords might not know they’re eligible for a deduction, and other times, they don’t track their expenses, which only adds difficulty to the process.
To help you maximize your return, we’re here with 10 essential tax deductions you should consider every time tax season rolls around. We’ll go over rental property depreciation, repair and maintenance deductions, travel and transportation expenses, insurance, and more.
Plus, we’ll give you some landlord tax deduction tips and tricks to help you squeeze your write-offs in before the deadline buzzer. Or you can use them to get ahead of the game for next year’s tax season by accurately recording expenses throughout the year.
10 Landlord Tax Deductions
The following list is incomplete but includes some of the most widely used deductions landlords claim on their yearly taxes. Tracking these expenses as they arise is critical so you can properly deduct them when filing.
Let’s take a look.
1. Rental Property Depreciation
Accounting for the wear and tear of your rental properties is one of the most beneficial reasons for getting into the rental property business. When done correctly, landlords slash their tax bills to grow their business, invest, or remain liquid to anticipate issues.
These rental property tax deductions are spread out over a period of time, normally 27.5 years for residential properties, as defined in the Modified Accelerated Cost Recovery System, or MACRS. Depreciation allows landlords to recoup property investment costs over time rather than writing the cost of a property off at once.
Check out A Guide to Maximizing Returns: Rental Property Depreciation for an in-depth rental property depreciation guide.
2. Repairs and Maintenance
Common repairs return the property to working order and are deductible the year they’re completed. Tasks that fall under this umbrella include fixing leaky plumbing, repairing electrical outlets, or maintaining an HVAC system. These are essentially maintenance tasks to keep the property operational.
On the other hand, capital improvements depreciate over a longer period. For example, if you have to replace a roof, you wouldn’t deduct that cost immediately. You’d depreciate it, similar to rental property depreciation, over an extended period and deduct portions of the cost from your taxable income separate from your property depreciation.
3. Insurance Premiums
Insurance isn’t only a good idea, but it is also deductible. Just about any type of insurance you can think of fits the bill. Insurance types include:
- Property
- Landlord
- Fire
- Flood
- Theft
- Employee Health
- Workers’ Comp.
If you pay for any of the above insurances, account for them and deduct them accordingly to save on taxes.
In the event of an owner-occupied rental with multiple tenants, landlords would need to prorate all the applicable insurance premiums for only the percentage of the house used to house tenants. So, depending on your situation, you might need to do some math.
4. Professional Services
The wages of people you pay to help you operate your rental property business are deductible. Regardless of their services, whether they’re plumbers, electricians, real estate brokers, or lawyers, you can deduct those payments from your taxes.
But be aware that you’ll have to file a 1099 for any independent contractor if you pay more than $600 per year for their services. That means you’ll need to obtain their tax ID number, which you could get by issuing a W-9.
5. Travel Expenses
Landlords can write-off travel-related expenses incurred for property management purposes. For example, you can deduct travel costs related to traveling from your home to a rental property in a different city. If you have to travel longer distances for your rental business, you can generally write-off costs such as airline tickets, meals, and hotel bills.
If you know the exact cost of your travel, you can write-off the actual amount. Alternatively, you can tally your miles and use the IRS’s standard mileage rate. Just know that you can’t alternate between deduction methods; if you choose actual costs, you must stick with that method.
But if you’re traveling for a capital improvement to your property, say you’re meeting an out-of-town contractor to discuss that new roof you need, just know that you can’t deduct those costs all at once. You’ll add them to the cost basis of your improvement and write them off accordingly.
6. Interest
Interest that you pay to run your rental property business is deductible. Consider the interest accumulating on the costs you paid to acquire or fix the property. If you have mortgage interest, you can write it off.
Similarly, you can deduct interest on credit card debts related to rental property expenses.
7. Advertising and Marketing
Getting the word out about your vacant rental requires landlords to advertise and market their rentals. And guess what? Those costs are deductible, too.
It doesn’t matter how you list your property — you could put it in the newspaper, on Craigslist, put up signs, or use TurboTenant to blast your rental property listing across the web on as many listing sites as possible, and you can write those costs off.
8. Charitable Donations
Landlords who donate unused property, such as furniture or appliances, can write-off those non-cash donations from their taxes. Not only does it help charitable foundations stock their shelves, but it also helps landlords clear space to make room for new additions.
9. Utilities
Depending on your situation, if you pay utility bills like water, gas, and electricity, you could claim a rental property tax deduction for the costs of paying for those services.
For example, assume you don’t have a tenant in a unit for a few months. If you pay to keep the lights on and the water flowing, you could deduct those costs from your taxable income.
It’s important to note here that you must pay the bills. You cannot claim the deduction if your tenant pays all the utilities. But, if you share a multifamily property, you can deduct a portion of what you paid from your taxes.
10. Bad Debts
There isn’t anything worse than not getting the rent from one of your tenants, other than an eviction. That said, you can deduct that bad debt (unpaid rent) from your taxes if you meet a specific requirement.
If you use an accrual accounting system to record rent payments as they become due and not when they’re actually collected, you could deduct the bad debt. Essentially, you record income even if a tenant doesn’t pay you. So, you’re still counting the missed rent payments as income, even if they aren’t paid. In that case, it counds as a rental property tax deduction.
But this is a rare case. Most landlords are cash-method taxpayers who are taxed based on payments they’ve received, so deducting missed rent payments isn’t all that common. For more information, check out the IRS’s article on bad debt collection.
Why Landlords Miss Deductions
Clearly, landlords can claim a number of tax deductions, but many miss deducting them. There are four common reasons this occurs.
- Lack of Knowledge: Some landlords aren’t aware of all the deductions they’re eligible for because the tax code isn’t all that easy to decipher. By checking out lists like this, rental property owners can broaden their awareness and maximize their returns.
- Time Constraints: Running a rental property business is time-consuming. Thorough record-keeping required for tax deductions presents challenges if you have multiple properties or a full-time job.
- Overlooking Deductions: Landlords who don’t keep thorough records of repair and maintenance expenses, travel and transportation costs, and other deductible expenses miss out on potential savings.
- Resource Constraints: Not all landlords can afford professional accounting services and tax accountants, so write-offs get left floating in the wind.
Of course, if you fit any of these categories, you risk profitability. Also, landlords who don’t keep detailed records are at risk of an IRS audit. It’s best to track every expense thoroughly to save money and avoid the IRS’s crosshairs.
How to Streamline Expense Accounting
We hope our list of rental property tax deductions got your brain started on the myriad deductions landlords can claim, helping you build your knowledge base for future tax seasons. But there are still considerations you need to make if you want to squeeze every penny out of tax time.
To help with time constraints, overlooked deductions, and resource limitations, choosing purpose-built accounting software can help you record expenses as they happen.
So, instead of digging through a shoebox, looking for receipts after the fact and then entering them into a spreadsheet, choose to proactively enter expenses into tailor-made rental property accounting software.
And when you can compile all your bank accounts, financial statements, and property information into a single program, you can get a 30,000-foot view of all your financials in just a few clicks.
Ready to take the sting out of expense accounting?
Sign up for a TurboTenant account today and integrate your account with REI Hub.
Our integration automatically syncs rent payments and expenses tracked in TurboTenant and pushes them to REI Hub for an automatically generated Schedule E form recording your rental property tax deductions. You can then it file yourself or hand it off to your accountant.