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A Deep Dive into Rental Property Tax Deductions

As a landlord, you are highly involved in looking for tenants to rent your property while at the same time ensuring that you provide the necessities to keep them around. That adds you money in your bank account. However, the IRS is always knocking to check on what you have earned, so you have to pay the necessary taxes. There are a few rental property tax deductions that you should incorporate to minimize rental tax obligations.

1. Loan Interest

One of the primary deductions that can be a considerable is interest on loans. Most of the tenants have used mortgages to acquire rental properties. IRS guidelines allow landlords to deduct interest on loans from their taxable rental income. However, you cannot deduct the amount you are paying towards the principal loan amount. You will easily differentiate the loan interest and the amount going to your mortgage as they are listed on your monthly statement.

2. Insurance Premiums

Any form of insurance is considered a necessary and ordinary rental property expense and therefore qualifies as a deductible. This deduction applies to liability insurance, extraordinary peril, and homeowners insurance. If your rental properties have employees, you can deduct the amount of money that goes towards health and workers’ compensation insurance. 

3. Property Depreciation

Wear, tear, and obsolescence inflict negative aspects on the overall value of the property. This loss in value is referred to as depreciation and is tax deductible. You have an opportunity to claim for depreciation immediately after construction. Some landlords claim depreciation before their property has attracted tenants with the sole aim of lowering their rental tax expense. However, you should note that only the value of the property depreciates but land does not lose value with time.

4. Maintenance and Repairs

Maintenance and repairs are necessary and standard expenses that keep your property appealing to the clients but do not add significant value. All the repair expenses, including labor and materials costs, incurred during repair and maintenance, are tax deductible. Some of the common repairs that are deducted from taxable income include cleaning HVAC filters, tuning the plumbing, painting, and landscaping, among others. 

5. Property Utilities

As a landlord, you will have to handle various utilities to make your property suitable for renting. Some of the utilities you will be covering include water, electricity, gas, and AC. They are tax deductible. Other utilities that landlords have been deducting include satellite and internet. Tenants may choose to reimburse you for internet and satellite, but you can file reimbursement as rental income for tax purposes.

6. Home Office

If you manage your rental property in an appropriate home office you can deduct all the expenses associated with running the rental property office. Any other workshop or home space that is used to enhance the rental property can be deducted from taxable rental income. The home office and the workshop must meet specific minimum requirements. 

These are some of the rental property tax deductions that you can consider deducting from your taxable income to minimize tax expenses. Additional deductions may include travel expenses for issues related to the property, consultation fees, advertising and marketing, homeowner association fees, among others. Before deducting anything from your rental income, you should make sure that it is generally accepted and ordinary in the rental business. 

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.