No owner would pay more than necessary for resources or other operating expenses for a rental property. Yet millions of owners pay more taxes on their rental revenue than they must. Why?
Rental real-estate provides more tax benefits than just about any other investment.
Every year, millions of landlords pay more taxes on their rental income than they need to. Why? Because they fail to milk all of the tax repayments available for owners of rental property. Income real estate provides more tax benefits than just about any other investment.
Often , these benefits make the greatest difference between losing money and earning a decent profit on a rental property. Here are the top 10 tax repayments for owners of residential rental property:
Interest is often a landlord?s single biggest deductible cost. Typical instances of interest that landlords can subtract include mortgage interest charges on loans used to get or improve rental property and interest on mastercards for goods or services employed in a rental activity.
The price of a place, residence building, or other rental property is not completely deductible in the year in which you pay for it. Instead , owners get back the cost of property through depreciation. This implies subtracting a little of the price of the property over several years.
The price of repairs to income property (provided the repairs are standard, mandatory, and reasonable in amount) are totally deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
4. Local Travel
Landlords have entitlement to a tax deduction when they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the appliance store to purchase a part for a repair[**] you can deduct your travel expenses.
If you drive a car, SUV, lorry, pickup, or panel van for your rental activity (as most owners do), you have two options for subtracting your auto costs. You can:
- subtract your exact expenses (gasoline, upkeep, repairs), or
- use the standard mileage rate (56.5 cents per mile for 2013). To be accepted for the standard mileage rate, you should use the standard mileage strategy the first year you employ a auto for your business activity. Furthermore, you can?t use the standard mileage rate if you have claimed speeded up depreciation kickbacks in previous years, or have taken a Section 179 reduction for the auto.
5. Long Distance Travel
If you travel overnite for your rental activity, you can deduct your flight ticket, hotel bills, meals, and other costs. If you plan your journey thoroughly, you may also mix owner business with pleasure and still take a reduction.
But IRS auditors closely review rebates for overnite travel? And many taxpayers get caught saying these deductions without correct records to back them up. To remain in the law (and avoid unwished-for attention from the IRS), you want to correctly document your long-distance travel expenses.
6. Home-based Office
Provided they meet certain minimum necessities, owners may take their home-based office costs from their taxable income. This reduction applies not only to space dedicated to office work, but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or studio or are a renter.
7. Workers and Independent Contractors
Whenever you hire any person to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the employee is an employee (for instance, a resident executive) or an independent contractor (for example, a fix person).
8. Casualty and Theft Losses
If your rental property is damaged or destroyed from a sudden event like a fire or flood, you might possibly be able to get a tax reduction for any part of your loss. These kinds of losses are called casualty losses. You often won?t be in a position to subtract the entire cost of property damaged or destroyed by a casualty. How much you can take relies upon what quantity of your property was demolished and whether the loss was covered by insurance.
You can take the premiums you pay for almost any insurance for your rental activity. This includes fire, burglary, and flood insurance for rental property, as well as owner culpability insurance. And if you have staff, you can subtract the cost of their health and workers? Compensation insurance.
10. Legal and Professional Services
Ultimately,. You can deduct fees that you pay to attorneys, accountants, property management firms, real-estate investment advisors, and other pros. You can subtract these costs as operating costs so long as the fees are paid for work related to your rental activity.
Did You Know?
Do you know that:
- Landlords can greatly increase the depreciation rebates they receive the first few years they own rental property by employing divided depreciation.
- Careful planning can permit you to subtract, in a single year, the price of improvements to rental property that you would instead have to take over 27.5 years.
- You can lease out a vacation home tax free, in a number of cases.
- Most tiny landlords can take up to $25,000 in rental property losses annually.
- A special tax rule permits some owners to deduct 100% of their rental property losses each year, irrespective of how much.
- Folks who rent property to their family or friends can lose virtually all their tax rebates.
If you did not know any one of these facts, you could be paying much more tax than you want to.
As always, be sure to check with your tax adviser or tax pro.
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Marco Santarelli is an investor, author and founder of Norada Real Estate Investments — a nationwide real estate investment firm providing turnkey investment property in growth markets around the United States. For more articles like Top Ten Tax Deductions for Landlords, please visit our Real Estate Investing Blog where it was originally published.