Individual owners of residential rental property often pay more in taxes than what’s required of them. Fortunately, rental property offers more tax saving benefits than many other types of investments.
The following is a list of the top ten most common expenses for rental property tax deductions:
Repairs/Maintenance: Repairs including painting, fixing floors, patching leaks, plastering, and replacing broken fixtures are permissible tax deductions for the year in which they occurred (not for improvements).
Depreciation: The purchase price of a rental property is not fully deductible during the tax year its acquired. However, landlords may deduct a portion of their real estate acquisition costs through depreciation. The IRS says you can depreciate a rental property for 27.5 years (its recovery period). So take the cost of the property (its basis) and you can deduct 3.63% of this amount every year during its recovery period.
Interest Payments: As one of the largest landlord deductions, this includes mortgage interest used to purchase or improve rental property and credit card interest on products or services for the rental property.
Vehicle: Whenever you drive for your rental property (see tenants or contractors, do maintenance, etc.), your vehicle expenses can be deducted using one of two options.
Option 1: Deduct your expenses (gas, repairs, etc.)
Option 2: Use the IRS.gov standard mileage rate
Travel: If you travel long distances for your rental property, you can deduct your airfare, hotel bills, meals, and related expenses such as parking fees.
Legal and Professional Fees: Any payments made to attorneys, property managers, accountants, etc., involving your rental property, may be deducted.
Insurance: You can deduct the premiums you pay for insurance for your rental property. This includes fire, theft, flood, and landlord liability insurance
Home Office: You can deduct the portion of your personal home’s expenses used for managing your rental property business. This is often a dedicated room or area where you screen tenants, pay bills, etc. The IRS allows for a percentage of utilities, rent, insurance, depreciation, mortgage interest, property taxes, and some casualty losses, repairs, and improvements to reduce your taxable income.
Wages: When you hire an employee or contractor (plumber, electrician, etc.) to perform a service for your rental property, you are permitted to deduct the amount you pay them. If you pay $600 or more to any one individual during the year that’s not incorporated, the IRS requires you to issue them form 1099-MISC. This form requires the person’s social security number and the amount paid.
Casualty and Theft: If your rental property is damaged or destroyed from a fire, flood, theft, etc., you are often able to deduct the portion of your loss that is not covered by insurance.