No one likes paying taxes. However, the IRS cares little for our feelings. And so, taxes we will pay.
Fortunately, however, if you own and rent out a property, you are privy to a number of tax breaks. Deductions can be taken on most landlord-related costs, helping you to substantially reduce your tax burden by year’s end.
Curious as to the specifics of these deductions? Here are the top 7 tax benefits of rental property for landlords.
Tax Benefits of Rental Property
As was noted, there are plenty of rental property tax write-offs available to landlords. Some of the most commonly used landlord tax deductions are as follows.
1. Loan Interest Deduction
Generally the biggest tax benefit that landlords get from their rental properties is the loan interest deduction. Any interest that a landlord pays on mortgages for his or her properties can be written off.
Landlords can also deduct interest paid on a rental-related credit card. This is a credit card used to buy relevant supplies and make relevant repairs.
For some landlords, interest payment figures can reach the tens of thousands of dollars. Unless you earn more than $25 million from your various properties, you can write all of these interest payments off.
2. Deductions on Professional Services
Landlords can also deduct payments for professional services. Any payment made to render a service for the good of your rental property can be written off in your taxes.
These services include everything from legal services, to accounting services, to marketing services, and more. A general list of professional service expenses that can be written off include court filing fees, legal fees, lawyer fees, and tax preparation fees.
You can also deduct costs incurred during the advertising process. These include costs associated with billboards, posters, radio adverts, newspaper listings, and postage.
These are 100% deductions. Each cent paid can be written off provided that you can back it up with valid receipts.
3. Insurance Premium Deduction
It doesn’t matter what type of business you run, if you pay insurance premiums, you can deduct those premiums from your taxes. As a landlord, you’re bound to pay plenty of insurance premiums. Each and every one of them, provided that they’re associated with your rental property, can be deducted.
Specific types of insurance premiums that can be written off include homeowners insurance, fire liability insurance, flooding insurance, mortgage insurance, theft insurance, and general liability insurance, to name just a few.
If you have employees, you can also write off the costs of their health insurance premiums as well as the cost of workers’ compensation insurance.
4. Travel Deduction
Another deduction landlords can take is a deduction on costs associated with property-related travel. This includes any travel necessary to maintain and repair your various rental properties. Note, however, that travel costs associated with property improvements can only be deducted through depreciation.
Travel costs that can be deducted include fuel costs, airfare, and hotel costs, to name just a few. You can also deduct the costs associated with the upkeep and repair of any vehicle that you use solely to perform landlord-related tasks.
While you can deduct overnight travel costs associated with your rental properties, you need to be very vigilant when doing so. The IRS pays close attention to such deductions, and is going to want to see all of the necessary documentation. A tax accountant can help you to furnish such documentation.
5. Maintenance Deduction
A big part of owning a rental property is keeping it in good shape. Fortunately, the IRS understands that, and supports it by allowing landlords to deduct the costs associated with maintenance measures. This is a complete deduction, allowing you to deduct your total maintenance cost.
What constitutes maintenance, you ask? Any non-repair needed to help a rental property function adequately. This includes a number of different things, from landscaping costs, to pool cleaning costs, to pest control costs, to cleaning costs, and more.
It also covers maintenance resources, including gas for lawnmowers, smoke detectors, cleaning supplies, HVAC filters, and other such entities. Essentially any cost associated with maintenance can be written off in full.
6. Repair Deduction
Repairs are a fairly large part of being a landlord. Components of your properties break down, and need to be fixed to get said properties up and running again.
While these repairs can be a little costly, you don’t have to bear the full weight of each repair payment. The reason for this? Repair payments can be fully deducted from your taxes.
The question is: what constitutes a repair in this context? The answer is, small actions needed to help a property function properly. This includes the painting of walls, the caulking of bathtubs, the patching of drywall, and much, much more.
Note, however, this does not include large-scale measures. Large actions taken on a rental property are called improvements and are a little different than simple repairs.
7. Improvement Deduction
As was just noted, improvement deductions are a little different than repair deductions. Whereas repairs include actions such as caulking bathtubs and painting walls, improvements include actions such as replacing roofs, adding new rooms, overhauling kitchens, and the like.
In essence, while small repairs will fix a problem for a year or so, improvements will fix a problem for decades.
While standard repairs can be written off immediately on a yearly tax return, improvements must be written off through depreciation. What this means is that their total costs must be broken down into smaller costs, and deducted evenly over the course of several years. Depreciation exists to prevent us from deducting huge amounts of money on a single tax return.