The IRS allows landlords and rental property owners to deduct certain expenses on their taxes which can help offset their taxable income. Too often landlords and rental property owners pay more taxes than they should have to. Often, these tax breaks make the difference between losing money and earning a profit on your investment. AREA Texas Realty & Management has compiled a list of the most common tax deductions for landlords.
Depreciation: Can be a huge deduction. You first have to figure out what the property is worth when you bought it, called the basis, then find out the depreciable life, called the recovery period. You then deduct a percentage of the basis each year during the recovery period. It can be a complex formula. However your tax accountant can help you formulate your depreciation.
Insurance: Insurance premiums are tax-deductible. If you have purchased one of the following insurance plans : Homeowners Insurance, Mortgage Insurance Premiums , Fire/Damage/Liability Insurance, Flood Insurance, Theft Insurance, General Liability Insurance, Personal Umbrella Insurance
Interest: Interest charged on your mortgage or loan improvement interest rates are tax-deductible. Landlords can also deduct interest charges on credit cards if the charge was used for rental property services.
Repairs: All repairs can be deducted. It is important to point out that repairs and improvements are not the same and that only repairs can be fully deducted. Improvements can be depreciated. Ex: Your A/C unit is not working properly. Your handyman tells you he can “repair” the unit for $1,000 or you can “replace” the unit for $3,000. *If the unit is repaired, $1,000 is tax-deductible. If the unit is replaced, this is considered an improvement to the property and the cost has to be depreciated over time.
Travel: You can deduct local travel expenses. If you need to drive to the property for a tenant complaint or emergency, gas mileage can be deducted.
Long Distance Travel: If there is overnight travel and long distance travel that can also be deducted. Examples are: airfares, hotels, meals, rental car and other expenses.
Legal and Professional fees: You can deduct fees that you pay for property management services, attorneys, placement fees, eviction court fees, real estate advisors.