Rental Property Tax Deductions Landlords Often Miss

Being a landlord means more than just receiving the rent and making the tenant happy. With repairs, maintenance, traveling, and professional fees, all these expenses might stack up fast.

The reality that most landlords don’t know is that some of these costs could be tax-deductible, and not taking advantage of them could mean having to pay more taxes and earn less income from the property.

There are various types of tax-deductible costs ranging from depreciation to cost segregation, among other operational costs that a landlord should be aware of. Having good records and planning ahead of time would help identify some of the deductions that you have been overlooking.

Depreciation and Cost Segregation Basics

Depreciation

Undeniably, depreciation will turn out to be a rather substantial tax issue for you as a landlord since instead of deducting all the expenses incurred on acquiring a qualifying building at once, you will be entitled to amortize the costs over the course of a certain period of time as provided for under the tax law. It is necessary to mention that not all your property will have the same treatment for tax purposes, and your building, land, appliances, etc., might come into play.

In addition, if you haven’t considered depreciation before, you should speak with a qualified tax professional about how it applies to your property. A Philadelphia HOA rental manager can flag which capital improvements may qualify for accelerated depreciation under cost segregation rules.

Cost Segregation

If you have many improvements on your rental property, such as appliances, fixtures, etc., then it may be a good idea for you to look into cost segregation so as to lower your tax burden. The gist of it is that it allows you to segregate those parts of your rental property that would depreciate faster, thereby allowing you to claim certain deductions sooner.

Cost segregation isn’t always the right choice for every single landlord, especially because of the extra professional fees. That’s why you shouldn’t jump into any hasty decisions, but consider whether your expected tax savings will outweigh the cost.

Deductible Repairs vs. Capital Improvements

One area worth paying attention to is the difference between maintaining your property and making significant improvements. Yes, both will cost you money, but they may also be treated differently tax-wise. On one hand, repairs will keep your rental in top shape. For example, carrying out repairs like fixing a leaking tap or addressing minor plumbing problems may qualify as deductible expenses.

But in the case of improvements, it is either an improvement to your property, the restoration of a substantial part of your property, or the adaptation of your property for a new purpose. And these differences may not be clear, so you should not just assume that all your costs qualify for immediate deductions.

For this reason, you should keep your invoices, receipts, and descriptions of the work you’ve completed to make reviewing your spending a bit easier. And if you’re still unsure, a tax professional can help you distinguish between repairs and improvements. Besides, reviewing available tax write-offs for real estate investors each year helps ensure landlords aren’t leaving deductions on the table.

Other Tax Deductions Landlords Miss

Home Office

Now, if you regularly manage your rental property from a home office, you might be pleased to find out that some of your workplace expenses are deductible. However, working from home occasionally to answer tenant calls or handle paperwork doesn’t mean you’ve automatically qualified for a tax deduction, because the rules all depend on your circumstances and the tax requirements that apply to you too.

Mileage

In addition, every time that you visit your rental property can become quite costly, whether you’re there for an inspection, meeting with contractors, or overseeing repairs. Luckily, some of these travel expenses may be deductible. Thus, you should keep a record of your property-related trips and costs throughout the year so you don’t miss potentially deductible expenses when preparing your tax return.

Professional Fees

It is important to consider the experts who assist you in managing your rental property, as some of their charges may be deductible as well. For example, you might pay some professionals to help you sort things out. That’s exactly why you should keep all of your invoices and payment records together, to easily document the services you’ve paid for.

Conclusion

At the end of the day, rental property tax deductions can make a really big difference to your bottom line, but to identify your eligible expenses, you’ll need quite a bit of preparation. From depreciation and property maintenance to travel and professional services, several of your costs are worth reviewing before you file your taxes.

Therefore, when you have managed to organize your accounting and have a good grasp of your expenditures, you will go into tax time with a lot more confidence and make smarter decisions about your rental investments.

FAQs

What are some of the tax deductions that landlords can take for their rental properties?

Some of the eligible expenses that can be deducted include management fees, repairs, insurance premiums, mortgage interest, professional fees, and travel costs, among others. It all depends on what the relevant tax laws provide.

How does cost segregation benefit rental property owners?

Cost segregation is when some of the qualifying components of the property are identified and treated as having shorter depreciation periods than those of the building.

Can landlords claim home office expenses?

A landlord who uses his or her home office in managing the rented property may be able to get some deduction. But making just a few phone calls and dealing with paperwork will not be enough.

Can landlords claim mileage and travel expenses?

Sometimes expenses for trips related to activities like property inspection, repairs, meeting contractors, etc., can be claimed by landlords.