Below you will find the top ten deductions for landlords that will decrease their tax liability. Before claiming any of these deductions, make sure to have receipts and files to back them up.
Interest can be one of the biggest tax deductions for a landlord. They can deduct interest from a mortgage loan or credit card interest from using the credit card for repairs on the property. Mortgage Interest (primary & secondary), HELOC Interest, Credit card interest on purchases or improvements on the property, and Mortgage Points to purchase or refinance the property all fall into this category.
You will not be able to do this in the year the property was bought but you can do it the following years when the property actually depreciates. The value of the structure and the value of the improvements can both be depreciated.
Repair costs are deductible in the year that they are done. The repairs have to be needed and the cost must be within reason. Repairs can also include any effort to maintain the current condition of the property. The type of repairs that fall into this category would be painting, plumbing, AC and Heat repairs, fixture repairs, fixing floors or the roof, and fixing windows. You can also deduct the Labor Costs for conducting these repairs.
4. Local Travel
You can deduct the mileage you incur from your rental activities such as going to the property, collect rent, dealing with a renters problems, and even going to the hardware store.
5. Long Distance Travel
Traveling a long distance for you rental duties can also be deducted. You deduct such things as airline fares, car rentals, taxis, uber, gas, 50 % of meals, hotel bills and more. You have to document your trip carefully as the IRS will look closely at this deduction.
6. Home Office
While meeting certain requirements, you home office and/or workspace used for your rental activities can be deducted. You can also depreciate certain equipment used in you rental business space including ink, paper, pens, rental software, legal documents, phone and internet, and the square footage of the home office. Be careful as that IRS says that one of the most commonly audited deductions is a home office.
7. Employees and Independent Contractors
Whether an employee or an independent contractor, you can claim their wages as a tax deduction as long as it is related to your rental business expenses.
8. Casualty and Theft Losses
If you property is damaged or destroyed by a flood or fire per se, you can deduct part but not all of the loss. This is dependent on whether you had insurance or not.
The premiums that you pay for almost any type of insurance related to you rental business can be deducted. You may also deduct your employees health and workers compensation insurance.
10. Legal and Professional Services
You can deduct legal and professional service fees. These fees are known as operating expenses and can be deducted as long as they are related to your rental business. These fees can include tax preparation and software, property management services or software, court filing fees and accounting advice.