10 Types Of Rental Property Tax Deductions
Rental property tax deductions can greatly reduce the cost of owning and managing rental properties. Knowing which expenses are deductible will help maximize your return on investment. As a property owner, you can take advantage of different deductions to lower your tax burden.
From everyday maintenance costs to special allowances for properties listed on platforms like Airbnb listings, knowing what you can claim is absolutely necessary.
Here, we will cover the most common and beneficial rental property tax deductions available to property owners. We’ll guide you through the process of saving money while managing your rental properties effectively.
Rental Property Tax Deductions:
1. Mortgage Interest
One of the biggest rental property tax deductions available is mortgage interest. If you finance your rental property through a loan, the interest you pay can be deducted from your rental income. This deduction helps offset the cost of borrowing and reduces your taxable income.
For many property owners, mortgage interest is a large expense, so being able to deduct it can result in substantial savings come tax time.
It’s important to note that only the interest portion of your mortgage payment is deductible. Principal payments, on the other hand, are not deductible.
This still means a significant portion of your monthly mortgage payment may be eligible for deduction, depending on the size of the loan and the interest rate.
If you have multiple properties or are managing Airbnb listings, this deduction can apply to each property you own, allowing you to reduce your taxable income on a larger scale.
Just be sure to maintain clear records of interest payments made throughout the year to make certain you are claiming the correct amount.
2. Property Taxes
Property taxes are another common and distinct deductible expense for rental property owners. These taxes are paid to local governments, and they differ depending on the location and the value of the property.
Regardless of the amount, property taxes are considered a necessary cost of owning rental properties and can be deducted from your rental income.
Because property taxes are an ongoing expense, they can accumulate over time, adding up to a considerable sum. The good news is that these taxes can be fully deducted on your tax return. This helps reduce the amount of taxable income from your rental properties.
If you own multiple properties or have home rental listings in different areas, you can deduct the property taxes for each one. Make sure you track these taxes each year and keep receipts or statements from the taxing authorities, because they will be important when filing your taxes.
3. Depreciation
Depreciation is an important concept for rental property owners, because it allows you to deduct a portion of your property's value each year.
The IRS assumes that your rental property will decrease in value over time due to normal wear and tear. This allows you to claim a depreciation deduction to offset this loss. This is one of the most valuable tax deductions available for property owners.
Depreciation applies to both residential and commercial properties. Whether you own a single-family home or a multi-unit building, you can claim this deduction. The IRS allows you to depreciate the value of your property over a period of 27.5 years for residential rental properties.
This means that each year, you can deduct a portion of the property’s value, helping to reduce your taxable rental income.
It’s important to note that land itself cannot be depreciated, only the building or structures on the property. So, when calculating depreciation, make sure to separate the value of the land from the value of the building.
This can be a complex process, so it may be helpful to consult a tax professional to make sure you are depreciating your property correctly.
4. Repairs and Maintenance Costs
Keeping your rental property in good shape is necessary for it to stay attractive to tenants and retain its value. Fortunately, many of the costs associated with repairs and maintenance are deductible.
This includes tasks like fixing a leaky roof, replacing broken appliances, painting walls, and handling plumbing issues. These repairs help maintain the property's livability and, as such, can be written off as a business expense.
It’s important to identify the difference between repairs and improvements.
While repairs, like patching a hole in the wall or fixing a broken faucet, are deductible. However, improvements such as installing a new roof or remodeling a kitchen, need to be capitalized and depreciated over time instead of being deducted in the year the expense was incurred.
For property owners with Airbnb listings, repairs and maintenance are just as important, because keeping your rental in top condition is imperative for good reviews and repeat guests.
Whether you’re dealing with minor repairs or routine maintenance tasks, keep track of all associated costs and receipts. They can be used to lower your taxable income.
5. Insurance Premiums
Insurance premiums are another rental property owner tax-deductible expense. Having comprehensive insurance coverage for your rental property is highly recommended. This is because it helps protect you from unexpected damages or liability claims.
The premiums paid for property insurance, including liability and casualty insurance, can be completely deducted from your rental income each year.
The cost of insurance can differ depending on the location and value of your property, as well as the type of coverage you select. Although the cost of insurance may seem like an additional expense, it can be a helpful tax break when tax season rolls around.
Whether you have home rental listings or Airbnb listings, the premiums paid to cover your property can be deducted. It reduces your overall taxable income.
Be sure to keep detailed records of your insurance payments and policy information, because you will need this documentation to claim the deduction.
If you have more than one rental property, keep track of the insurance costs for each property separately. By doing so, you’ll be able to maximize the tax benefits of these premiums.
6. Property Management Fees
Managing a rental property can be time-consuming and require a range of administrative and operational tasks. Many property owners hire management companies to handle these responsibilities.
The good news is that the fees you pay to these companies are fully deductible, because they are considered a necessary business expense.
These fees can include anything from tenant screening and lease management to general property upkeep. It can also cover marketing costs for finding tenants, dealing with maintenance issues, and even seeing to tenant concerns.
If you outsource the daily management for your home rental listings or Airbnb listings, the associated costs are deductible. This will also lower your overall taxable income.
When claiming this deduction, it’s important to keep records of all payments made to the property management company. This includes contracts, invoices, and payment receipts. These documents will be needed for accurate reporting on your tax return.
If your management company charges additional fees, like a percentage of rental income, these can also be written off.
7. Utilities Paid by the Landlord
As a rental property owner, you may choose to cover certain utilities for your tenants. This could include water, electricity, gas, or internet service. In cases where you pay for utilities, you are allowed to deduct the costs from your rental income.
These expenses count as part of the cost of doing business, helping reduce the total taxable amount.
However, it’s important to note that utilities paid by tenants are not deductible. Only the utilities that you, as the landlord, pay on behalf of your rental property qualify for this deduction.
For example, if your tenants pay for their own electricity but you cover the water and gas bills, only those expenses that you paid for are deductible.
This deduction can be particularly beneficial for owners of Airbnb listings where utilities might be bundled with the rent to simplify costs for short-term tenants.
If you’re managing multiple properties or long-term rentals, utility expenses can add up quickly, but claiming this deduction can provide some financial relief when it comes to taxes.
8. Travel Expenses Related to the Property
Travel expenses associated with maintaining and managing your rental property are also deductible. If you need to travel for maintenance, inspections, or repairs to the property, the cost of transportation, meals, and lodging can be written off as part of your rental property business expenses.
For example, if you own rental properties in different locations and must fly or drive to inspect the properties or oversee repairs, you can deduct those costs. This also includes gas for your vehicle, mileage, and any accommodations required during the trip.
The travel must be related to the operation or maintenance of your rental properties, not personal travel.
For those managing home rental listings across different regions, travel costs can become substantial. Keeping track of all expenses tied to these trips is important, because you can claim them on your tax return.
Just remember, these costs must be directly tied to the maintenance and operation of your rental properties to be eligible for a deduction.
9. Advertising Costs
To attract tenants to your rental property, marketing is often required. Whether you list your property through home rental listings, Airbnb listings, or another platform, the costs incurred to advertise your property are deductible.
This includes professional photography, online ads, printed materials, and even the fees for listing services.
Effective advertising can make a difference in filling vacancies and generating consistent rental income. The costs for running these ads and creating promotional content are part of doing business. Therefore, you can write off these expenses on your tax return, further lowering your taxable rental income.
Keep detailed records of the advertising fees, such as receipts for online ads or invoices for photography services. These will serve as evidence of your marketing costs when filing your taxes.
If you paid for a service like a website listing or a professional photographer, those costs should be included in the advertising deduction as well.
10. Professional Services
Many rental property owners look for professional services to help them run their business. These services might include legal fees, accounting services, or a consultation with tax professionals to guarantee compliance with tax laws.
The costs associated with these professional services can be deducted from your rental income, because they are necessary to maintain smooth operations and meet regulatory requirements.
For instance, if you hire an accountant to assist with tax preparation or a lawyer to draft lease agreements, those costs can be written off as business expenses. Similarly, if you consult with a tax advisor to better comprehend rental property tax deductions, those fees are deductible as well.
Maintaining accurate records of these expenses is important. Save any receipts, contracts, or invoices that show the services provided and the amounts paid. This documentation will support your tax deduction claims.
Maximize Your Savings Through Rental Property Tax Deductions
Identifying the many types of rental property tax deductions available to property owners is an excellent way to reduce your tax burden and increase profitability.
By keeping thorough records of all expenses, from property management fees to advertising costs, you can optimize your deductions and maximize your return on investment. However, dealing with tax laws and keeping up with changing regulations can be complex.
At GRS Management, we specialize in more than just property management; we provide a full suite of services designed to make your rental property experience as efficient and profitable as possible.
As a company committed to excellence, we know that tax deductions are an important part of your financial strategy. Our team has years of experience in helping property owners like you get through those choppy waters.
We can help make certain that all eligible expenses—whether related to property maintenance, advertising, or professional services—are properly accounted for, so you get the maximum return.
If you have any questions about GRS Management or our services, feel free to contact us. We look forward to assisting you with all your property management needs.