As the excitement of the New Year starts to fade and resolutions are tossed to the wayside, it’s time to start thinking about doing your taxes. While no one looks forward to tax season, it is an inevitable task that we must complete. However, this time of year doesn’t have to be a cause of stress. With the right tips, landlords can have a very successful April 17th.
Managing your taxes can be a handful, and there are many rules for landlords to follow to properly claim their income and expenses.
Here are a few notes on some helpful deductions:
- Home Office
As a landlord, it’s very likely that you have an office within your home, and this actually works to your advantage. If you have a section of your home that you have dedicated an “office” to do any work pertaining to your rental properties, you can claim a deduction for that space. The amount of the deduction depends on what percentage of your house you’ve dedicated to your office; while it may be a small amount if your work space is on the tinier side, every little bit counts. - Repairs and Improvements
A repair is something that returns your property to its original state, while an improvement is a project that adds value. You can deduct the cost of your annual repairs from your tax return. Improvements, however, cannot have the full amount deducted at one time. That deduction is based on the depreciation value, and is something that you deduct annually based on its useful life. - Mileage
If your use your own vehicle for rental property related business, then those costs incurred are considered deductible. There are two ways to calculate these expenses: by applying a standard per-mile rate, or by figuring out the exact percentage of mileage that was used for business purposes and applying it to the price of gas, insurance, repairs, etc. You can find more information about both methods on the IRS website. - Legal Fees
Having to evict someone is never a fun experience. Should you have to take a tenant to court for whatever reason, those expenses can be deducted from your rental revenue. This also covers fees from other hired professionals, such as accountants. - Depreciation and Recapture
Landlords have the opportunity to deduct for depreciation of their property, which is something that few people get to do. There are guidelines about how this deduction works, such as the value of the land that the property sits on which is not eligible for depreciation. That amount must be subtracted from the total value of the property when calculating these figures. However, it is important to keep the opportunity to “recapture” in mind. Should you sell your property for more than the depreciated value, it is very possible you’ll have to add some of that depreciation back to your taxable income. This can be a large amount added to your taxes, and it is important to remember that rule should the time come. - Travel Expenses
Occasionally you have to travel for work, especially if your rental property is in another state. The costs of traveling are deductible, but be sure to stick to strictly business-related expenses. As nice as it would be to deduct the cost of your family trip to Disney World, that action may lead to the IRS knocking at your door. - Interest
Interest charged on business-related purchases is eligible for deduction. Got some interest on your credit card? As long as the purchases were for your business, those costs can be deducted. It’s important to keep detailed records, as that will make it easier to figure out just how much you can write off. - Employee Compensation
As a landlord, you probably don’t have many employees. However, should you hire someone to help out or even a contractor to do some work once or twice, those wages can be deducted as business expenses. Be sure to keep copies of all the invoices and bills you receive during the year. - Taxes
When being charged taxes on business-related items (excluding those that are depreciable), that tax is a deductible expense. Sales tax and property tax are a part of this, but be sure to check the latest regulations to see what exclusions may apply. - Insurance
Landlords can deduct certain premiums on their taxes. From health to car insurance, you are typically eligible to write off at least part of that payment. Consult the IRS to see which deductions you qualify for. - Casualty Losses
Should your property be damaged by a natural disaster or an event like a fire, you can deduct some or all of the cost of the loss. Check with your insurance provider for more specific details, and what your coverage allows for. - Entertainment Costs
As nice as it would be if this meant taking the family out for dinner and a movie, it’s referring to any entertainment costs that may come as a result of doing business. Offering a potential tenant theatre tickets or taking them out to dinner would fall under this category, or essentially any likewise expenses that occur during business dealings.
One trick to having a successful Tax Day is to make sure you’re organized. Keep all of the necessary receipts, and detailed records of expenses. Having this information kept neat and all in the same place will make it that much easier to claim all your deductions, and get the most out of your tax return. Consulting an accountant can help ensure that you file everything correctly, and avoid any unnecessary trouble with the IRS.
Which deduction(s) are you most excited about this tax season?
