Tax Benefits of Owning A Rental Property

In 1789, Benjamin Franklin wrote, “Our new constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except Death and Taxes.” Although this isn’t the first time the quote “Death and Taxes” was recorded, many believe this letter from Franklin is what made the saying famous. With it now being tax season, our biggest fear or regret can be to leave possible deductions on the table that could cost us thousands. As an investor or landlord, you are in a unique situation to utilize some great tax benefits. Rental real estate provides more tax benefits than almost any other investment. As with anything, please consult a professional or in this case a qualified accountant for clarification, but below are just a few recommendations to make note of if you currently own residential rental property:

Repairs

The cost of repairs to the property can be fully deductible in the year in which they are incurred. Some examples of deductible repairs might include repainting, new flooring, fixing leaks/plumbing, drywall repair, etc.

Interest

Interest is often the single biggest deductible expense. Common examples of interest include mortgage interest payments on loans used to acquire or improve your property and interest on credit cards for goods or services used in a rental activity.

Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. However, you can get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

Local or Long Distant Travel

You are entitled to a tax deduction for most of the traveling you do for rental activity. For example, when you drive to your property to deal with a tenant complaint or go to the store to purchase a part for a repair, you can deduct your travel expenses. However, you can’t deduct the cost of travel you do to improve your rental property–these expenses must be added to its tax basis and depreciated over many years. If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses.

Casualty and Theft Losses

If your property is damaged or destroyed from an event like fire or flood, you may be able to get a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as liability insurance. And if you happen to have employees, you can deduct the cost of their health and workers’ compensation insurance.

Legal and Professional Services

You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

Below is a link sponsored by the IRS that has some other useful information in regards to tips on owning rental properties. Hope this helps to take a little edge off the horrors most of us face during tax season.

IRS Tips