Being a landlord or a rental property manager takes a lot of effort, but it can considerably increase your income. But the process can become a little too complicated for some people. Especially because many are inexperienced in financial planning and fail to get tax deduction benefits. You must find renters, obtain insurance, and pay the mortgage and property taxes in addition to handling the money and obligations associated with your own living space. Your individual tax position may get more complicated if you rent a home.
Fortunately for real estate rental property owners, the IRS lets you write off part of the costs of managing a rental property. The IRS mandates that expenses that are deductible must be common, customary, and essential for managing and maintaining the property in the rental business. Managing the tax and financial effects of your assets in real estate can also be done in collaboration with a financial advisor, in case you feel lost.
Read the article below to get the best insider tips on rental property tax deduction ideas that will benefit your real estate business in the long run.
Top 7 rental property tax deduction ideas for your benefit
What are the best ways to get rental property tax deductions? We have listed 8 of the top rental property tax benefits that you can avail of to get better profit margins from your rental properties. Financial management for your real estate no longer has to be a long-drawn nightmare when you have these tips handy. Read on to find out.
Mortgage interests
Both homes and rental properties are typically bought with a mortgage by homebuyers. The biggest tax deductible item for landlords and property managers who have a mortgage is the interest payment on their loans.
To simplify, the amount of your monthly mortgage that goes toward the principal amount borrowed cannot be deducted. But the payments made to cover interest and fees are eligible for the deduction. These elements are easy to remember because they are explicitly labeled on your monthly payment. The annual total cost of interest can be calculated by simply multiplying the monthly sum by 12.
Insurance premiums
Before obtaining a mortgage, banks and credit providers may need customers to obtain insurance. Fortunately, any kind of insurance paid for the property is seen as a regular and essential expense of any rental home and is legally deductible. Both special and liability insurance coverages can be deducted. Along with this, the standard homeowner's property insurance is eligible for the deduction. If you hire staff, you can also subtract the expense of staff health insurance.
Rental property depreciation value
Market reports by Investopedia say the average depreciation value for US homes is 3.636% each year for 27.5 years. This means that from the day you buy your property, you can always claim the tax benefit from the depreciation value of your property. This comes under the regular wear and tear that happens over the years and can help you get good tax benefits. But remember, the value of the property can depreciate, but not of the land the property is built on. Publication 946 (2021), How To Depreciate Property by the IRS can help you get through this complicated process in case you feel lost.
Property upkeep cost
If you spend money to maintain and renovate your property can also come under tax deductions. The tax rules do let you claim some repair and upkeep expenses individually, even though house renovations are deductible through depreciation. The main distinction is that, although maintaining your property's rentability, these actions do not significantly increase its property value. All the maintenance must be solely to keep the place habitable, and not to add excess luxury.
According to the IRS, examples of renovations and maintenance include landscaping, HVAC systems, drainage, insulating, and more. You can write off the labor expenses if you pay someone else to complete the task.
Staff employment cost
Any staff that you employ or hire to take care of the property can also be written off under tax deductibles. This also comes under the property management fees. This can also include your travel expenses and utilities inside the house. In case you use extra money to hire contracted labor or maintenance staff, you can deduct that cost during tax payments.
Casualty losses that are not covered by insurance
Any losses that are not covered by your insurance and you had to pay out of your own pocket can be deducted during tax payments on your rental properties. Any damages caused by unforeseen events like natural disasters or accidents that cause any damage can come under this.
Rental property owners can recover rental deductions for rental expenses that would have been tax deductible if there had been no damage. This can be done only if they are unable to recover rental losses from rental income due to events like earthquakes or fires. This is a special case scenario which you can benefit from in case of casualty losses.
Legal and professional fees
When you work with a lawyer or an accountant to manage your taxes or fight legal issues, you can write off their fees while filing your taxes. Even if you subscribe to property management software like Yardi or MRI software to manage your property, that can be claimed under professional fees.
In case you advertise your property on different sites, you can claim that as well. Make sure you notify your financial advisor or back office accountant to remind them to claim these. Why pay these extra taxes when there are some great tax-deductible options for you?
Take the Help of the Assetsoft Team
At Assetsoft, we have years of experience in helping many real estate business owners and managers get the maximum tax benefits by providing proper advisory services. Talk to our financial services team to get the best expert advice your business needs. If you think you are spending too much on taxes and hardly have any profits left, you must be on the wrong track.
Our financial experts have been in the real estate market for decades and they know all the insider tips and tricks to help you save the big bucks. From growing your property rental business to providing property management services, we do it all. Get in touch with the Assetsoft team to know more about our services.