Tax Deductions Landlords Can Avail Of

By E-Renter Tenant Screening
Posted on October 31, 2006 under Landlord Tips | icon: commentBe the First to Comment

While, no landlord should have to pay more than necessary for rental property utilities and other operating expenses, however, the truth is that millions of landlords end up paying more taxes on their rental income, than they need to. For the reason, they simply fail to take advantage of tax deductions that are available to owners of rental property.

Probably, this is due to the fact, they are not aware that rental real estate provides more tax benefits than almost any other kind of investment. If, a landlord knows how to take advantage of these benefits, often it makes the entire difference between losing money and earning profit from a rental property. However, tax deductions are useless, if one does not take advantage of them. Small residential rental property owners can apply for the following top ten tax deductions:

  1. Interest: A landlord’s single biggest deductible expense, landlords are permitted to deduct mortgage interest payments on loans used to acquire or improve rental property, including interest on credit cards for goods or services required in rental activity.
  2. Depreciation: The actual cost of a house, apartment building, or other rental property is not fully deductible in the year it is bought and paid for. Instead, landlords can get back the cost of real estate through depreciation, by deducting a portion of the cost of the property over several years, as residential rental property must be depreciated over 27.5-years.
  3. Repairs: The cost of necessary repairs to rental property can be fully deducted in the year in which they are incurred, as long as they are reasonable in amount. Good examples of deductible repairs. include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
  4. Local travel: Any travel by a landlord, such as, driving to a rental building to deal with tenant complaints, or a trip to the hardware store to purchase repair items for a rental property can be deducted as travel expenses, since landlords are entitled to a tax deduction, whenever they drive anywhere for completed errands that relate to their rental activity. They can deduct either actual expenses i.e. gasoline, upkeep, repairs or they can use the standard mileage rate e.g. 44.5 cents per mile in 2006; 48.5 cents per mile Sept. – Dec. 2005; and 40.5 cents per mile from Jan. – Aug. 2005.
  5. Long distance travel: If, a landlord’s rental activity involves overnight travel, airfare, hotel bills, meals, and other expenses can be deducted as business expenses. To stay within the law, landlords must document properly long distance travel expenses, while combining business with pleasure.
  6. Home office: Provided certain minimal requirements are met, landlords can deduct home office expenses from their taxable income, such as, space devoted to office work, or to a workshop, or any other home workspace used for their rental business.
  7. Employees and independent contractors: If, a landlord hires anyone’s professional services for his / her rental business, he / she can deduct their wages as a rental business expense.
  8. Casualty and theft losses: If, a landlord’s rental property is damaged or destroyed by fire or flood, he / she can obtain a tax deduction for all or part of their loss. Called a casualty loss, the entire cost of property damaged or destroyed by a casualty cannot be deducted, but how much can be, depends on the property area that is destroyed, and whether the loss was covered by insurance.
  9. Insurance: Premiums for almost any kind of insurance that covers a landlord’s rental activity can be deducted e.g. fire, theft, flood insurance for rental property, as well as landlord liability insurance. If, a landlord has several employees, the cost of their health and workers’ compensation insurance can also be deducted as a rental business expense.
  10. Legal and professional services: Finally, lawyers, accountants, property management companies, real estate investment advisors, and other professional fees can also be deducted as operating expenses, as they are paid for work related to rental activities.

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