As 2012 is wrapping up, so is the tax year. It’s a good time to focus on the tax deductions for landlords you can claim as a rental property owner.
Below are seven key 2012 tax deductions for landlords rental property owners can look forward to:
1) Mortgage Expenses
Rental property owners can write off the interest paid on their mortgage. The mortgage company will send you a Form 1098 that tells how much interest you paid the previous year.
Unfortunately, one-time expenses at closing — such as commission and appraisal — aren’t fully deductible in the year that you pay them. Instead, you can amortize them over the life of the loan, still leaving you with a hefty deduction.
When something breaks, you have to fix it and the landlord foots the bill. The good news is that repair and maintenance costs are tax deductible.
The distinction is a repair that keeps your property in good working order. If something breaks or could potentially break and you spend the money to replace or update it, the cost is considered tax deductible.
3) Travel Expenses
Keep tabs on any time you travel to the property to make improvements or collect rent. On your taxes, you can either take a standard mileage rate (55 cents per mile in 2012), or deduct actual expenses including gas, upkeep and repairs.
4) Taxes and Preparation Fees
If you have someone else prepare your taxes, like attorneys or accountants, those expenses can also be written off.
5) Insurance and Losses
The cost of insuring the property can be written off along with any losses from casualties, like burglaries or natural disasters such as tornados, hurricanes or floods.
6) Lawn Care or Association Fees
If have a lawn service cut the grass or maintain the landscaping of your rental property, those expenses can be written off as well. Association fees that condo associations often use to cover lawn care, exterior maintenance and the upkeep and maintenance of other common areas are also deductible.
The IRS allows rental property owners to deduct depreciation of the value of a rental property. The assumption is that since property is useful for a long time, over that time, it wears out and is worth less money. You should not be taxed on the same value as when the property was purchased.
You calculate depreciation by adding up the total costs of the property and dividing it by the useful life of the property Anchor. For residential rental real estate, the useful life expectancy is 27.5 years. You would take the total value and divide it by the useful life to discover the depreciation.
For example, if you purchased a rental property for $120,000, you would divide that number by 27.5 for a depreciation of $4,545 per year.
As with all tax-related details, it is vital to keep excellent records to back up all your tax deductions. If you are audited, you will get penalized and pay more because you don’t have the proper documentation. For further peace of mind, consult a tax professional to help you get the most tax deductions you deserve and organize your documentation.