From taking care of tenants’ needs to filing annual taxes, there’s a lot you need to do as a landlord to run a successful rental business. However, one way you can increase your profits is by understanding what all the tax deductions for landlords are and claiming the ones you’re eligible for. Whether you operate as an LLC or a private landlord, here are some types of landlord tax deductions to consider:
1. Mortgage interest
Unless your property is fully paid off, you can claim your mortgage interest as a tax write off for your rental property.
Depending how big your mortgage is and how much interest you pay on it, this can often turn out to be one of the most significant tax deductions for landlords.
If you’re charging enough rent to cover your mortgage payments and other expenses, as well as claiming mortgage interest tax deductions, you should be well on your way to making a solid rental income.
2. Travel expenses
If you personally travel to check on rental properties, you can deduct expenses for things like gas, parking, tolls, vehicle maintenance, and anything else you pay for in order to visit your rental units.
If you plan on doing this, make sure to keep receipts and records of all your travel expenses to claim them accurately.
As an alternative to claiming your actual expenses, you can use the IRS Standard Mileage Rates to calculate deductible travel expenses. This gives you a standard rate (in cents) per mile that you are allowed to deduct, without providing receipts or records of your actual expenses.
You can write off most rental property insurance premiums as landlord tax deductions, including your landlord insurance premiums.
Other examples of types of insurance you can deduct are fire, theft, and flood insurance, and health and workers’ compensation insurance (if you have any employees on your payroll).
Additionally, if you made any insurance claims during the last year, you may be able to deduct whatever insurance didn’t cover from your taxes.
4. Specific repairs and maintenance
Certain types of required repairs and routine maintenance are part of the cost of doing business, so you can claim them to get rental property tax deductions.
You can deduct both the wages you pay to any independent contractors, such as landscapers, pool cleaners, and repair workers, as well as the cost of any equipment and materials you purchase or rent to perform maintenance and repairs.
It’s important to note that any repairs and maintenance costs you write off must be reasonable and necessary.
Examples include repainting, fixing gutters, repairing floors, fixing leaks, plastering walls, and replacing damaged windows.
You should not try to write off anything that would be considered an improvement, such as renovations that are not absolutely necessary.
5. Employee wages for property managers or maintenance workers
If you employ your own workers, such as property managers or maintenance people, you can also include their wages as operating cost tax write offs for your rental properties.
These don’t have to be full-time employees, either. They could be part-time workers or independent contractors that you have employment contracts with.
6. Personal property
If you use any personal property in your rental businesses, the cost of this property can usually be deducted from your taxes.
For instance, if you furnish rental units with new appliances, like stoves, ovens, refrigerators, and laundry machines, you can write these off when you file taxes during the following year.
Or, if you buy any equipment to repair or maintain rental units yourself, such as gardening or cleaning supplies, you can deduct the costs of these items.
7. Home office expenses
Depending how big your rental business is, chances are you run it out of some type of home office. You can keep track of and include these home office expenses when you file your taxes to receive further landlord tax deductions.
Home office expenses include the cost of the space you use as an office (e.g., the cost of the office’s square footage in your home), office supplies, internet and phone bills, and anything else that you can reasonably justify is required to run your rental business.
8. Legal and professional services
Consultation fees and other costs associated with real estate lawyers, accountants, and tax professionals are also deductible expenses that you can claim.
Even if you pay to use professional tax preparation or accounting software, you can probably write off the cost of it when filing your taxes.
9. Other operating expenses
Any other expenses that you have to pay to operate your rental business, but that don’t fit into any of the categories mentioned above, might qualify as a deductible operating expense.
For instance, if you pay fees to list your rental properties on certain sites or advertise them elsewhere, you might be able to write these expenses off, as long as you can prove that they are required expenses.
Other examples of operating expenses included tenant screening fees and utility costs.
Depreciation is a special type of tax deduction for landlords that allows you to deduct the cost of your property in small amounts over a set number of years.
In fact, depreciation is actually a landlord tax deduction required by the IRS, so make sure to always include this when you file your taxes each year.
You can typically deduct around 1/27 of the cost of your property each year, as rental properties depreciate over 27.5 years.
Claiming all the rental property tax deductions you’re eligible for is a great way to maximize your annual rental income by reducing how much you have to pay for taxes.
If you re planning to sell your rental property, make sure you're aware of the potential capital gains tax so you don't experience an unexpected tax hit.
In order to protect your income, you should also make sure you have landlord insurance and business income insurance coverage in place.
This type of insurance provides important protection against the risk of rental income loss due to unforeseen circumstances.
Remember that you can write off most landlord insurance premium costs on your taxes, so there’s really no reason not to get coverage!