7 Tax Deductions Landlords Are Entitled To
The government has extended the 2019 tax filing deadline to July 15. This is good news for everyone, but especially landlords. It means you have more time to make sure you take all the deductions you’re entitled to. The taxes that come with owning a rental property can feel overwhelming . Fortunately, there are legal ways for landlords to save a lot of money on taxes. Yet, it may come as a surprise to hear that many landlords don’t take all of the tax deductions available to them. Nobody should have to pay more than they are required to in taxes. There are a few important tax deductions that every landlord should note.
1. Wages Paid to Both Independent Contractors and Employees
Anyone who runs a small business is able to deduct the expenses tied to that business. When it comes to being a landlord, this includes wages paid to employees and contractors. Any payments made to someone to clean the house or maintain the yard are tax-deductible. Any wages that are paid directly from the landlord to independent contractors or employees can be deducted from the taxes. On the other hand, any third party (a subcontractor) who is paid by an independent contractor or employee for expenses can’t be deducted from the landlord’s taxes. Those would be deducted from the contractor’s taxes instead.
2. Repair Jobs
From time to time, repairs are going to come up. This is one of the most common expenses associated with being a landlord. Some of the typical repairs that landlords face include fixing broken gutters, repairs or replacement for damaged roof shingles, plastering jobs and fixing leaks in the home. The costs of materials, labor, and any damage restoration expenses are all fully tax-deductible in the year they were incurred. It is important to differentiate between repairs and improvements, as improvements are not tax-deductible.
3. Marketing and Advertising Expenses
Every business, including owning rental properties, has marketing expenses. All of these marketing expenses are tax-deductible. Some of the most common marketing expenses include paying for a business profile on various social media sites, posting flyers and bulletin boards around town, and even placing ads in the local newspaper. Even the cost of a “for rent” sign in front of the property is tax-deductible. If a property manager is hired to field tenant requests, keep the property occupied, and handle maintenance issues, this cost is also tax-deductible. Now, if you own a turnkey rental from MartelTurnkey, you probably won’t carry any of these costs, since you have a property manager that handles all this on your behalf. Instead, the marketing and advertising expenses that a property management company incurs would be deducted on that company’s tax return.
4. Utility Bills, Taxes, and Insurance
Some of the other routine fees and bills that are tax-deductible include property taxes, building insurance, and utility bills. These also fall under the categories of business expenses. Therefore, landlords need to make sure they keep track of these expenses. Track any internet costs, electricity bills, water bills, gas expenses, and phone bills because all of these can be deducted from a landlord’s taxes. Often, landlords overlook the cost of property taxes and home insurance because these are included in the mortgage payment. Make sure to look at the mortgage breakdown and track home insurance and property tax costs. All of this can be deducted from the landlord’s gross taxable income.
5. Travel Expenses To and From the Property
Many landlords, especially owners of turnkey rentals, don’t live in the same area as the rental property. Traveling to and from the rental property also qualifies as a business expense. For example, if the landlord has to fly somewhere to visit the property, the cost of the plane ticket is deductible. This also covers taxi or shuttle trips in addition to the cost of the hotel, if necessary. Bear in mind that leisure activities during this visit are not tax-deductible.
6. Maintenance of the Property
There are going to be some other routine costs that come along with running a property as a landlord. The amount of money spent maintaining the property is tax-deductible. Some of the most common property maintenance costs include changing the furnace filters, checking and re-grouting the tile, and inspecting the hoses that are attached to appliances. In between leases, you or your property management company may need to replace weather-stripping, install new insulation, or have the chimney or ductwork cleaned. All of these property maintenance costs are tax-deductible. On the other hand, it is important to note that any “betterment” projects are not tax-deductible. This includes home renovation projects, such as kitchen redesigns or bathroom upgrades.
7. Interest Paid on a Mortgage
Finally, any landlords that are still paying a mortgage should remember that the interest on that mortgage is tax-deductible. During the first few years of mortgage payments, most of the money paid to the lender is interest. Therefore, nearly the entire mortgage payment might be tax-deductible. It’s important for landlords to take a look at their mortgage statements each month and track the interest they are paying. Often, at the end of the year, the bank will produce a statement showing the amount of interest paid during that timeframe. Keep that record of receipt so you can be sure to deduct it on your tax return this July.
For landlords, these are some of the biggest tax deductions available, yet many of them are often overlooked..Therefore, you need to make sure you take advantage of every tax deduction to which you are legally entitled. For the most thorough review of all your available tax deductions, consider hiring the services of a CPA.