5 Rental Tax Deductions to Write Off

Did you know if you earn rental income from a property you own and rent out, you might be eligible for certain tax deductions? The deductions must be for necessary and ordinary expenses to own and maintain the property.

Here are 5 of the most common rental tax deductions you might be able to take.

1. Mortgage Interest

If you financed the property to purchase it, you can write off the mortgage interest. It’s a business expense to own the property. Your mortgage company will send you Form 1098 early in the year that will show the amount of interest you paid that you could claim on your tax return.

2. Property Taxes

Mortgage interest and property taxes are usually the highest expenses a landlord has, and you can write off both. The typical $10,000 limit for property tax write-offs that pertain to your primary residence don’t apply here, again because it’s a business expense.

3. Depreciation

As a rental property owner, you may be able to write off a portion of the property’s cost annually. This is known as depreciation. The IRS allows depreciation over 27.5 years for residential rental properties and 39 years for commercial rental properties, allowing you a prorated deduction annually. If you own property, you must allocate a portion of the purchase price to the land value, and the IRS does not allow you to depreciation land.

It’s important to note, though, that when you sell the property, you may have to pay tax on the depreciation recapture on any gains if you sell the property for more than its depreciated value.

4. Repairs

As a landlord, you’ll likely have to maintain the property which may mean making repairs. You can deduct the full amount of the repairs in the year you paid them. Be careful though, not to confuse capital improvements with repairs.

Capital improvements increase the property’s value. For example, adding another bedroom or finishing the basement are capital improvements. They increase the property’s value and therefore its cost basis.

Repairs, on the other hand, occur when you fix something that’s broken. For example, hiring a handyman to patch walls, repairing a broken door, or replacing a light fixture or faucet are repairs you can deduct the year you pay for them.

5. Typical Business Expenses

Many landlords don’t realize they can take the typical business deductions other business owners take. Just because you don’t have a brick-and-mortar business doesn’t mean you can’t deduct things like:

· Mileage to drive to and from the rental property

· Office expenses

· Advertising

· Insurance

Final Thoughts

Working with a reputable Certified Public Accountant will ensure you take all the tax deductions you’re eligible for as a real estate investor. Even though it may feel more like an investment than a business, in the eyes of the IRS rental properties are a business and you can take advantage of many tax deductions.

For more information on how you can take advantage of the tax deductions for rental properties, contact Murtha and Murtha CPAs today.