No landlord would pay more than necessary for resources or other operating expenses for a rental property. Yet millions of owners pay more taxes on their rental earnings than they need to. Why?
Rental real-estate provides more tax benefits than just about any other investment.
Every year, millions of landlords pay more taxes on their rental earnings than they have to. Why? Because they fail to take advantage of all the tax rebates available for owners of rental property. Income real estate provides more tax benefits than pretty much any other investment.
Regularly these benefits make the greatest difference between losing money and earning a profit on a rental property. Here are the most popular 10 tax deductions for owners of home rental property:
Interest is sometimes a landlord?s single biggest deductible cost. Common examples of interest that landlords can take include mortgage loan payments on loans used to procure or improve rental property and interest on credit cards for products or services used in a rental activity.
The particular cost of a house, apartment building, or other rental property is not absolutely deductible in the year in which you pay for it. As an alternative owners get back the cost of real-estate through depreciation. This implies deducting some of the cost of the property over several years.
The cost of repairs to income property (provided the repairs are normal, obligatory, and reasonable in amount) are completely deductible in the year in which they are sustained. Excellent examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing damaged windows.
4. Local Travel
Owners are entitled to a tax reduction when they drive anywhere for their rental activity. For instance, when you drive to your rental building to handle a renter complaint or go to the appliance store to purchase a part for a repair[**] you can take your travel expenses.
If you drive an auto, SUV, lorry, pickup, or panel lorry for your rental activity (as most owners do), you have 2 options for taking your auto costs. You can:
- take your exact expenses (petrol, upkeep, repairs), or
- use the standard mileage rate (56.5 cents per mile for 2013). To qualify for the standard mileage rate, you must use the standard mileage strategy the first year you use a automobile for your business activity. Also, you can?t use the standard mileage rate if you have claimed speeded up depreciation reductions in previous years, or have taken a Section 179 reduction for the car.
5. Long Haul Travel
If you travel overnight for your rental activity, you can take your airline fare, hotel bills, meals, and other costs. If you plan your trip carefully, you may also mix landlord business with pleasure and still take a deduction.
However , IRS auditors closely size up deductions for overnite travel? And many taxpayers get caught saying these repayments without proper records to back them up. To remain within the law (and avoid unwished-for attention from the IRS), you need to properly document your long haul travel expenses.
6. Home Based Office
Provided they meet certain minimum requirements, owners may take their small office costs from their taxable earnings. This reduction applies not only to space devoted to office work, and additionally to a workshop or any other home workspace you use for your rental business. This happens to be true whether you own your home or house or are a renter.
7. Employees and Independent Contractors
If you hire any person to perform services for your rental activity, you can take their wages as a rental business expense. This is so whether the employee is an employee (as an example, a resident chief) or an independent contractor (for example, a repair person).
8. Casualty and Theft Losses
If your rental property is damaged or devastated from a unexpected event like a fire or flood, you may just be able to acquire a tax reduction for all or part of your loss. These sorts of losses are called casualty losses. You often won?t be able to subtract the entire value of property damaged or demolished by a casualty. How much you may take is dependent on how much of your property was demolished and whether the loss was protected by insurance.
You can subtract the premiums you pay for almost any insurance for your rental activity. This includes fire, burglary, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can take the cost of their health and employees? Compensation insurance.
10. Legal and Professional Services
Finally,. You can take costs that you pay to lawyers, accountants, property management companies, real-estate investment consultants, and other execs. You can take these costs as operating costs so long as the costs are paid for work related to your rental activity.
Did You Know?
Were you aware that:
- Owners can hugely increase the depreciation reductions they receive the initial few years they own rental property by employing segmented depreciation.
- Well thought out planning can permit you to take, in a single year, the cost of improvements to rental property that you may instead have to subtract over 27.5 years.
- You can lease out a vacation home tax-free, in some cases.
- Most small landlords can take up to $25,000 in rental property losses every year.
- A special tax rule authorizes some owners to take 100% of their rental property losses every year, regardless of how much.
- People who lease property to their family or chums can lose nearly all their tax reductions.
If you did not know any of these facts, you might be paying far more tax than you need to.
As always, be certain to talk with your tax confidant or tax professional.
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Marco Santarelli is an investor, author and founder of Norada Real Estate Investments — a nationwide real estate investment firm providing turnkey investment property in growth markets around the United States. For more articles like Top Ten Tax Deductions for Landlords, please visit our Real Estate Investing Blog where it was originally published.