Landlords may be eligible for several tax deductions related to the ownership and operation of their rental properties. Some common tax deductions for landlords include:
Mortgage Interest 📈
Landlords can deduct the interest paid on a mortgage for their rental property. Rental property mortgage interest is typically reported on Schedule E (Supplemental Income and Loss) on federal tax returns. The mortgage company should provide you with a Form 1098, which reports the amount of mortgage interest paid during the year (this form also reports insurance, property tax payments, and any private mortgage insurance premiums paid throughout the year.
Landlords can deduct a portion of the cost of their rental property over several years, as the property is considered to be wearing out or becoming obsolete.
The depreciable life is used to calculate the amount of depreciation expense that can be taken as a tax deduction each year. The depreciable lives of real property are determined by tax laws and are subject to change. The following are some common depreciable lives of real property in the United States:
- Residential rental property: 27.5 years
- Commercial property: 39 years
- Personal property (e.g. furniture, appliances, equipment): 5-7 years
- Land improvements (e.g. sidewalks, fences, parking lots): 15 years
Repairs and Maintenance 🧰
Landlords can deduct the cost of repairs and maintenance to their rental property, such as painting, fixing leaks, and replacing broken windows. Cleaning fees to get the unit ready for the next tenant are also included in this category and can get deducted.
Landlords can deduct the cost of insurance for their rental property. There are a few types of insurance such as homeowner’s insurance (which you need to have when you use a home as your primary residence and have a loan/mortgage against it), landlord’s insurance (which covers the dwelling itself and not all the personal property inside), and private mortgage insurance (PMI). PMI is normally paid to a lender in the event that the property was financed with less than a 20% down payment.
Property Taxes 🏛️
Landlords can deduct the property taxes paid on their rental property. Property taxes are expenses that get paid to either your local city of county to help pay for general government services. You will owe taxes on a property each year you own the property in perpetuity.
Travel Expenses 🚗
If a landlord has to travel for rental property-related activities, such as showing the property to potential tenants or conducting repairs, they can deduct the cost of travel, such as airfare, lodging, and meals.
Legal and Professional Services 🖊️
Landlords can deduct the cost of legal and professional services, such as the cost of an attorney or accountant. Another form of professional service is property management. Property managers will help you find tenants and keep your property rented for a monthly fee. Paying this fee is tax-deductible and helps landlords by their time back.
Home Office Expenses 🪑
If a landlord uses a portion of their home exclusively for rental property management, they can deduct a portion of their home office expenses, such as utilities, mortgage interest, and property taxes.
It's always a good idea to speak with a tax professional or use tax preparation software to determine which deductions you're eligible for and to ensure that you're taking full advantage of all the deductions and credits available to you.
Home Owner’s Association (HOA) Fees
In the rising world of condominiums, HOA fees make up a large expense relative to a mortgage loan payment. HOA expenses tend to cover things such as common area maintenance, master insurance policies, amenities such as a gym, pool, or basketball court, and sometimes utilities like water, sewage, and trash. When you purchase a condo, your real estate agent should make sure you receive a copy of the latest condo documents which outline rules, regulations, and fees.
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