Rental Property Taxes – What Is Deductible?

Rental Property Taxes

When real estate investing in rental properties there are tax deductions that can be taken to offset the income your rents are generating. General deductions include rental property taxes, insurance, lawn care, tax preparation fees, and losses from casualties such as theft, flood and fire. Real estate rentals offer more tax rewards than just about any other investment and a professional tax preparer can find these deductions for you.

1. Interest is the single largest deductible expense. This includes mortgage interest payments and interest on credit cards for goods or services used in taking care of your rentals.

2. Depreciation on the actual cost of the apartment building, house, or other rental property is not deductible in the year it was purchased, but you can deduct a portion of the property over several subsequent years.

3. Rental income tax deductions can also include repairs made to the property. These should be ordinary and necessary and can be fully deducted in the year they were incurred. This includes repainting, fixing floors or doors, plastering and replacing broken windows or any other repairs that are part of a landlord’s responsibilities.

4. When you travel to your rental property for repairs, collecting or any other business associated with rentals you can deduct mileage. You can either deduct the actual expenses of gasoline, repairs and upkeep or use the standard mileage rate at 55.5 cents per mile.

5. You can also deduct long distance travel from your rental property taxes if you own properties outside your living jurisdiction and need to travel to these properties. Airfare, meals, hotel rooms can be deducted; make sure your keep accurate records.

6. Home offices can be deducted from tax liabilities if you maintain a separate space on your rental property for office work or a workshop for repairs.

7. Rental income tax deductions can also include anyone you hire to perform services for your rental. Deduct their wages as a rental business expense. This includes a resident manager or an independent contractor.

8. Casualty and theft losses can be deducted from rental property taxes and listed as casualty losses on your tax return. You will need to determine how much of the property was destroyed or stolen in order to calculate the correct amount to deduct.

9. Any insurance premium you pay in regards to your rental property can be deducted. This includes theft, fire and flood.

Little known rental property tax deductions also include renting a vacation home tax-free, deducting up to $25,000 in rental property losses each year, but renting to your family or friends can cause you to lose all your rental property tax deductions. Make sure understand the “no renting to friends and family” and do report any rental income from family. If you are careful you can deduct in one year the cost of improvements to your property that you would generally deduct over 27.5 years. There is also a singular tax rule that permits some landlords to take 100 percent of their repairs and replacement costs in a single year. The IRS has a full brochure on what deductions can be taken by landlords.