Just about every penny that you spend on your rental property is deductible in the eyes of the IRS, so long as it is an ordinary and necessary expense. This includes obvious expenses like property taxes, repair costs and management fees. But deductions also include other miscellaneous costs such as the expense of visiting your rental properties and the paper you buy to print a lease. In general, if you have to pay for something having to do with your rental property, it is a tax deduction.
You cannot deduct personal, living, or family expenses. However, you may have an expense for something that is used partly for business and partly for personal purposes. You must allocate the cost between business and personal, and you are only able to deduct the business portion.
Basic Rental Expenses
The rules specifying what you can legally deduct are very broad. Some deductions are basic and obvious, while other deductions may be a little surprising. Your goal should be to deduct every legal tax deduction you are afforded under the law to increase your returns.
So let’s take a closer look at some of the tax deductions available to real estate investors. Most investors are pretty good at tracking these types of basic deductions:
- Advertising expenses. Advertising expenses can include things like paying for a newspaper or online rent ad space, paying for signs that say ‘for rent’ and even paying for an advertising service to promote your properties.
- Cleaning and maintenance costs. These costs could include the supplies you need to maintain and clean the property yourself or if you hire someone else to do it for you.
- A depreciation deduction will be calculated by your tax professional. This is a non-cash expense that will reduce your taxable income.
- Insurance costs. Insurance costs can include property insurance or other types of insurance that are required for a rental property.
- HOA fees. This would include all fees and assessment with the rental’s HOA.
- Interest. Specifically, as it relates to mortgage loans secured by the property.
- Legal & professional fees. This can include attorney fees as well as court costs and fees related to inspections.
- Management fees. If you hire someone else to manage your property you can deduct the fees.
- Taxes. This would include property taxes and local rental taxes and assessments.
- Utilities. This would include water, sewer, electric and gas.
Additional Rental Expenses
As discussed, most property owners are pretty good at tracking the above deductions. But there are also some overlooked deductions for rental properties that you may be able to claim. Some examples of these deductions include:
- Telephone and Internet. These would be services that you pay to promote, manage or advertise your rental property. You may need to allocate the expenses between business and personal use.
- Office expenses. These would relate to your home office including stationary, office supplies and postage as long as they relate to your rental property.
- Local transportation expenses. This would include a mileage deduction that you would take to visit and maintain the property.
- Travel expenses. These expenses can have anything to do with travel, whether you needed to visit your rental property to check on deferred maintenance or if you just wanted to make sure that the parking area was free from snow. You may also be able to deduct the travel costs associated with real estate conferences and courses that you attend to improve your management skills.
- Interest on credit card debt. As long as the interest is on balances that were derived from rental property activities, it is deductible.
- Meals & entertainment. As long as they pertain to rental properties.
- Education and books. These are purchased to further your understanding of rental properties and property management.
- Equipment rentals. This may be for a copy machine, scanner or equipment used at a property.
- Professional dues. These are for investor groups or property associations.
- Accountant fees. Fees associated with tax advice and completing tax returns.
- Subscriptions. This includes magazines and newsletters having to do with real estate management or purchasing properties.
- Employee reimbursements. If an employee of yours pays for anything that has to do with your rental property and you reimburse them for the cost, this reimbursement is tax deductible.
Understanding real estate tax deductions is not as easy as it seems. Investors need to maintain complete and accurate records to ensure they do not overlook any legal deductions. We all have to pay taxes, but your goal should be to pay as little as possible to see higher returns on your investment.
About the Author
Paul B. Sundin is a CPA and tax strategist. He works with clients worldwide on real estate tax issues. You can find out more information on him by visiting www.sundincpa.com. Should you have any questions for Paul, you can reach him at 480-361-9400. Use of any information from this article is for general information only and does not represent personal tax advice — either express or implied. Readers are encouraged to seek professional tax advice for personal income tax questions and assistance.