Taxes and real estate can become quite complicated, often requiring the help of tax attorneys to assist in making sure you are aware of your federal tax responsibilities. Reported income must be reported on tax returns and expenses can be deducted from rental income. The IRS stipulates that deductible expenses need to be necessary towards managing the property. Some of the most common rental property costs you can deduct from taxes include:
- Loan interest
- Property tax
- Insurance premiums
- Maintenance and repairs
- Legal and professional fees
- Travel and transportation fees
- Office space
Loan interest is normally the largest deductible expense. The deduction amount you can subtract is the portion of the mortgage payment that is associated with the interest charges, not the principal loan amount. Origination fees and points can also be deducted if they were used to purchase or refinance the property.
Property taxes are another element that can be deducted depending upon the tax rate. It is important to contact a tax advisor to find out what needs to be done with property taxes. Occupancy taxes can be deducted if you have short-term rentals.
Insurance premiums are a necessary expense lenders require for homeowners to receive insurance properties. Rental property owners can deduct this expenses, as well as the cost of insurance for their employee benefits like health and workers’ compensation insurance.
Weather and time will start to age the property. The wear and tear on the property will lower the value of the property. Depreciation is common, and it is tax deductible. The deduction is spread out over multiple years. If you have equipment used to manage the property, it can be deducted. The equipment refers to a number of things from computers to furniture.
Maintenance and repairs are a necessary part of owning property. The tax code does allow for some maintenance and repairs to be deducted. HVAC system maintenance, simple upkeep costs, etc., will be allowed as a tax deduction. For property owners that hire out these services, you can deduct the cost you pay another person labor.
Utilities are another cost that people handle differently. Landlords that do cover the cost of utilities can deduct this cost from taxes. Some tenants will pay for Internet and other utility costs, which can still be filed as a deduction with a reimbursement claim for the money they paid.
Landlords do have the option of deducting legal fees for services they need. Legal fees such as paying a lawyer for paperwork filing is deemed a deductible expense. The costs of paying for advertisements for vacancy is another expense that is tax deductible.
Property owners often need to travel frequently to maintain the property. Each time you drive for the property, you can deduct the costs. Actual expenses can be recorded, or the standard deduction can be claimed.
Office space is another cost that can be deducted. Some landlords do not have a commercial space, but they use a home office to conduct business. The square footage of the space will be deductible, along with some costs like the phone like, computer equipment, etc.
A property management company can assist with tax deductions. Keyrenter Property Management East Bay specializes in creating wealth opportunities for property owners. Contact our office for more information on rental property tax deductions.