Owning rental property has many benefits and one of them is utilizing tax deductions to off set taxable income.
If you receive rental income from the rental of a dwelling, there are certain rental expenses you may deduct on your tax return.
Below are the following 5 Rental Property Tax Deductions every rental owner should know and take advantage of to maximize their overall return on investment.
1) Repairs & Maintenance- 5 Rental Property Tax Deductions Every Rental Owner Should Know:
The cost of repairs and general maintenance expenses are typically tax deducible.
Essentially, any expenses that are necessary to maintain the current condition of the property fall into this category. The repair and maintenance cost must be deemed necessary, reasonable and ordinary.
A few examples of ordinary maintenance and repair costs include:
- Interior/Exterior Painting;
- Plumbing repairs;
- Replacing broken windows and doors;
- Pool maintenance and cleaning services;
- Pest control;
- Gardening/landscaping services or tree trimming.
2) Mortgage Interest- 5 Rental Property Tax Deductions Every Rental Owner Should Know:
Mortgage Interest can often be a size-able deductible expense for rental property owners.
Three key expenses where the interest is deductible are:
- Interest on mortgage payments;
- On loans taken out for the purposes of improving the property;
- Interest on credit card payments that have gone towards goods and services purchased for a rental property.
Interest on these items can quickly begin to add up which makes the ability to offset these payments against one’s taxes potentially very valuable for most rental property owners.
3) Depreciation of the Property- 5 Rental Property Tax Deductions Every Rental Owner Should Know:
The value of a property can be depreciated over a period of 27.5 years and deducted against the properties profits.
However, It’s worth noting the IRS will claim a portion of the depreciated value back upon the sale of the property in what’s called depreciation recapture and only the value of the property itself is depreciable – not the land that the property is built on.
4) Property Management Fees-5 Rental Property Tax Deductions Every Rental Owner Should Know:
Yes, professional property management fees are considered tax deductible. Definitely something to consider when contemplating self management which in most cases is not deductible.
5) Legal Fees and Services-5 Rental Property Tax Deductions Every Rental Owner Should Know:
Service fees you pay to accountants, attorneys, or other professionals and advisors that help you with your rental property are tax deductible.
You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental property activity.
This also covers any costs for legal actions required to recover unpaid rent.
Please note that San Diego Premier property management is simply providing industry information and not providing tax advice.
Please contact your tax advisor or accountant when making tax decisions regarding such matters.
For more information on proper tax reporting, record keeping, or additional information about allowable deductions, please visit the IRS link below.
We hope you enjoyed reading 5 Rental Property Tax Deductions Every Rental Owner Should Know
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Written by Salvatore Friscia, owner of San Diego Premier Property Management a full service residential property management company offering Worry Free property management to the greater San Diego area since 2004.