Top 12 Rental Property Tax Deductions & Benefits [+ Free Worksheet]

Cody Cromwell
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Depreciation

This one isn’t for property investors, but for first-time homeowners who file an installment plan. Every year, the IRS considers how much you bought your home for and your average local home prices. Then they estimate how much less your home is worth today than what you paid. That’s called depreciation.

Depreciation is calculated based on the amount of money sacrificed to buy your home compared to the current home value. According to the IRS, when you purchase your home, you give up some money. We usually don’t think of this as a gain, because you’re getting more out of the money you put into your home than the money you put in. But, it is. The IRS recognizes this as a depreciation expense.

This is your biggest deduction on your tax return. For property tax purposes however, it’s an extremely complicated calculation. You can’t just work the IRS depreciation table wherever that number falls. To find out how much you paid for your home and how much the IRS thinks it is worth, they show you a Homeowners’ Tax Book.

I would highly recommend you learn how to work the Homeowners Tax Book on your own and for those who are new to the Tax Return Landscape it is a great place to start.

Depreciation Example for Rental Property

Let’s begin our discussion of rental property deductions with depreciation. Depreciation is the tax deduction available for the cost of the Building, Furniture, Fixtures, and Appliances that make your home more functional. For the purposes of the tax deduction, all of these items will be inventoried and then depreciated over several years. Starting with the Service Equipment, you will have five options to choose from for the cost of the building:

Buildings have 4 or 5 year lives. Furniture and Fixtures have 20 year lives. When an item is used in the building, it will expire at the end of its useful life prior to being replaced. You can buy an item outright or acquire it by rent or lease, and then depreciate it over the several years it’s in use. Certain items like office furniture are also normally indicated on Schedule C (if owned by you) or Schedule E (if owned by a limited company or an LLC) of the IRS Form 1040 as business and charitable

Expenses. Some items, such as wire shelving, can be deducted from capital assets you place in the building to fill your needs. By limiting the use of certain items on your Schedule C or E, you can increase the depreciation allowed for each item. Most property tax deductions are also written off based on the same 5 years, however some may be written off over 10 years.

Mortgage Interest Payments

Loans for the purchase of a property and borrowings that are secured by that property are called mortgages. In the case of rental properties, the borrower will have to pay property taxes, which are recorded as mortgage interest on the loan’s host document. Therefore, you should deduct property taxes as part of your rental property expenses. You can also eliminate property taxes from your rental property taxes in the same way as you eliminate property taxes on a personal residence.

Mortgage Interest

Points & Loan Origination Fees

I’ve been very vocal about my hatred for points and their abuse. Where I’m from they are considered a gimmick to trick you into paying for something you can get for free.

This has become more of a problem with the rise of the lease cars. Many of them have been made for the sole purpose of getting you to pay for their points. If these weren’t as common I’d say that I wouldn’t have a hard time getting rid of them right now, but I don’t have that luxury.

So here are the best ways to use them.

Interest on Unsecured Loans for the Property

This is commonly misunderstood and is one of the biggest mistakes that people make when looking to acquire a rental property. This is often known as the interest on the unsecured loan.

Since you don’t put anything towards the property itself (no down payment), the tax authority will not see this as an investment but rather a debt. So this can be deducted against your rental income, which is the only income you want to claim deductions against.

This differs from renting out a property where you put money down because you can deduct the mortgage interest and real estate agent fees against the rental income.

Don’t forget to claim the interest on your HELOC if you used it to acquire the property.

Interest on Credit Cards Used for the Property

Interest on a credit card used for the down payment of the house you are renting can be deducted. Make sure you have your receipts to show the amount of the interest you paid. The interest paid that you can deduct is defined as: The interest which you paid on those cards. It may include the interest for the amount you charged, the interest charged for your balance amount, and the interest charged for the delinquency period if it exceeds one billing period. It is up to your discretion how to split the interest payment between the credits cards.

Interest on Credit Cards Used to Pay for Rent and Utilities

Interest paid on any loans used to pay for the rental expenses of the property can be deducted. Make sure that you are able to deduct the interest that you paid.

Liquidity of Advances- The money that you borrowed for down payments and fees must be repaid within a fixed time period. Therefore, the interest paid on advances cannot be deducted. But the proceeds from the advances used to purchase the property can be deducted. How the money is used will determine which part of the money is considered as dividends, since the interest cost is based on a percentage of the original loan amount.

Fees & Tax Benefits of Rental Property

Renting an apartment is one of the most economical ways to live and is the preferred medium of housing for millions of Americans. Unfortunately, renting can be more expensive in some cities than in others. In the following infographic, we’re going to look at the communities that vary the most in their rent prices throughout the United States. Since we considered only the 40 most populous cities in the United States, we chose to exclude the New York metro area, as prices there can be even more expensive than in other cities.

Property Taxes

While each state has different laws for property tax deductions, there are many tax deductions that tenants can take advantage of that are available to landlords. Tenants are responsible for property taxes, but that shouldn’t stop them from taking advantage of these tax benefits.

Below are the top twelve tax benefits that tenants can take advantage of that are available to landlords. And remember, these are only the beginning. Contact your tax advisor for more information and the specifics of deductions. You should also know that lots of your local municipalities have special rules that may vary slightly.

Licensing Fees

Depending on where you live, you may not have to pay licensing fees or business expenses when renting a single family home.

However, if you take money in exchange for temporary use of a room or area of a home that’s usually occupied by more than one family living therein, then you’ll need to pay licensing fees and pass a business occupancy tax.

For example, if you run a bed and breakfast out of your own home, you’ll need to pay licensing fees, property taxes, and business occupancy tax for the period in which you rent rooms.

Renter’s Property Taxes and Business Licensing Fees

When you rent out your property, you’ll have to pay property taxes on the rental amount. This is usually calculated in accordance with your annual mortgage payments or how much you’re going to earn on the rental property.

Usually, the amount calculated by your city is adjusted to reflect the net income after expenses. You’ll have to pay taxes on the said amount, and when you file your annual tax return, the city will deduct the taxes from the income and send the rest to you after they’ve verified it.

Occupancy Tax Deductions

Common Law in the USA stipulates that the property owner is responsible for the cost of the services performed by the renters. While common law in the 2000’s was in tune with reality 2013 is not. Thus, it has become important to rent premises to individuals, companies and even governments for some or the entire year. Because of this conduct, the occupancy tax is imposed by the State and counties over the dwellings as follows. Since the tax is against the owner, the owner may deduct the cost incurred to perform the service, the depreciation of the dwelling.

Occupancy expenses can be excluded in calculating the rental income for tax purposes.

Occupancy tax deductions include the following:

The cost of utilities to the tenant.

When heat, air conditioning, and other energy supplied by the tenant exceeds the energy supplied by the landlord.

The cost of furnishings and equipment provided by the tenant.

The cost of repairs.

The cost of furnishings and equipment provided by the tenant.

A rental property owner using the rental property to collect and deliver customers’ orders for a business will be able to deduct certain amounts paid to the tenants for the occupation of the premises. The expense must be ordinary and necessary and may include mortgage payments for the home, taxes, lawn care, and the rental income. The deductions that may be claimed for rents paid to tenants include the following:

Insurance

When renting a house or apartment, a renter’s insurance can include coverage that would usually only apply to homeowners. Lloyd’s of London Insurance Company and other private companies sell renter’s insurance policies throughout the United States.

Renter’s insurance is an inexpensive way to protect a tenant from loss or damage in a rental house, apartment, or mobile home. Some policies cover damage or loss caused by fire, theft, or natural disasters. Most policies also cover liability.

A landlady or landlord is not required to carry renter’s insurance. If you want to make sure your tenant is financially protected, purchase renter’s insurance.

Deducting Umbrella Liability Policies for Rental Properties

The most widely sought after deductions by landlords are the not-easily-implemented deductions for bad debts, and deductible casualty losses for tenant-occupied rental properties.

The majority of landlords, however, do not have property or casualty insurance. This means that you must deduct these expenses from gross income on Schedule E (Form 1040). But that’s only part of the story!

Condominium owners will want to deduct not only personal property for which they have a direct loss of money, but lost or stolen business property and other off-premises property that represents a business and which has a deductible business purpose in addition to being available to the owner. (See IRC 162.)

In addition to personal and business property beyond that which is insurable, you should deduct any damage or theft of personal property that occurs (e.g., water damage, sewer breaks, etc.). In addition, loss in value to personal property due to theft or damage may be assumed.

Review:

Property insurers rarely let you avoid coverage under your contract. One exception might be dedicated mortgage insurance, which is intended to help you provide affordable housing.

Utilities

Property taxes also include all the utilities you’re required by law to pay: electricity, natural gas, gas for gas appliances, water/sewer, trash removal, and/or phone.

In your lease, you’ll most likely find a billed amount for these utilities. If you’re paying more than you need to, try finding an alternative – to either explore other providers, change to a more efficient model, or hook up to your county’s alternative energy program.

If you’re not sure whether you’re paying too much, run the numbers. This will let you know exactly what you’re paying per month and give you the opportunity to negotiate down rates or even switch altogether.

Do You Qualify for a Property Tax Abatement?
There are many different property tax exemptions or deductions you can use to pay a lower rate and to ease the financial burden of the property tax. For example, property taxes can be deductible on your federal income tax.

Find out about your state’s property tax and income tax deductions and jumpstart your tax savings today to spend it firsthand on your next property purchase, renovation, or repairs.

Maintenance & Repair

A lot of people rent homes, and to make that profitable rental property owners must make sure to keep it maintained. The expenses of repairs and maintenance can be absorbed by the owner, but taxes are paid for it.

Interest on loans to finance the improvements is usually tax deductible but would be considered in the "above normal base level" sums. If a property is a residentially occupied property, capital improvements would not be considered as deductible expenses. On the other hand, if it is not owner occupied and is rented out to a company, it would be considered deductible.

Houses with garages, carports and driveways can deduct the expenses of driveway costs and repairs also. If you make additions to the building to make it more suitable for housing, then those can be also deductions. Those improvements could include: door locks, central heating and air conditioning, fire alarms, swimming pools, shower rooms, and any other provisions in the house.

Cleaning, Maintenance & Repair

From a tax standpoint, you can accelerate the depreciation of your home by deducting real estate taxes and insurance premiums on your home office. Your insurance deductible is fully deductible, but you cannot deduct over a certain amount. If you have higher deductibles for your homeowners policy and the majority of your real estate taxes go toward real estate taxes and maintenance and repairs of your house, your total deductible should not exceed your total real estate taxes.

If you have a main place of business, you can deduct your insurance premium as part of your business expenses. If you have two separate businesses, you can deduct the portion of your insurance premium that was paid for the business.

There is one exception when it comes to real estate taxes: you cannot claim a real estate tax deduction if you bought your home just for business purposes. This holds for all types of taxpayers, including homeowners, business owners and investors.

Mileage Deduction

The mileage that you drive on work-related business is deductible. For every business trip, multiply the cost of the round trip mileage by the number of business days and divide by your total number of business miles. This gives you your total mileage deduction. You will need to keep a log of your business miles to report this information to your tax preparer.

Improvements

Property improvements are the major deductions that property owners can deduct on their rental properties. They’re usually major structural or cosmetic changes. Major improvements are not subject to limitations so it’s always wise to maximize your property improvements.

Note: Improvement deductions are not allowed if you’re claiming a limited life building. You can claim the major improvements right away if you’re building a new building, but if it is a major improvement for an existing building, then you have to wait for the building to be depreciated before you can deduct it.

Major improvements can include:

  • Roof replacement (upon purchase of the property)
  • Ceilings, floors, and walls (upon purchase of the property)
  • Windows, doors, and porches

Advertising & Marketing

Expenses for business advertising and marketing are eligible for the small business deduction in addition to other rules. Here’s the relevant tax code:

It is useful to keep in mind that advertising doesn’t always have to happen at print publications; it can also be conducted over the Internet (via websites, social media, or search engine optimization) or on the radio.

Number of Owners, Partners, and Their Share Percentage:

Owners are treated as partners for income tax purposes, and their respective shares of income or loss get allocated evenly among them.

As an example, if you own a property as a sole proprietorship, you’re required to file a Schedule C including yourself as an owner. If you have multiple owners, each of them must file his or her own Schedule C and report their share of income or loss in column (2) of that Schedule C.

Property Reserve Fund:

If you own your property for less than a full year and you have a property reserve fund set up, you’re allowed to expense all of your expenses. The property reserve fund is considered to be set up in the year where depreciation expense exceeds the depreciable basis of the property. In the example above, you would deduct your real estate taxes as well as your insurance premiums for that year.

Taxes:

Advertising

Kicking off our list with the AES Online free ad list. The AES is the largest organization directly serving the apartment industry, with over 400,000 members. Their list features all the major chainwide advertisers whose ad book includes 1 bedroom apartments. By using this AES list, you’ll get access to an entire book of 1 bd apartment ads.

It also comes with comprehensive prices and ads from local landlords and property managers for your offer. As a bonus, you’ll also get FREE access to their massive, online database of particulars. For more info, check out their website, or watch this video with me explaining why the AES is your best option for apartment leads.

Net Leads

Net Leads is the largest apartment database when it comes to the independent renter. They’ve been around since 2008, but they’ve been in business since 1994, which means they’ve been doing apartment lead research for over 20 years. And they’ve got a free database that’s updated weekly and features over two million listings for studio, one bedroom, and two bedroom apartments. You’ll also get access to over 200 online lead tools that are designed to make it easy for you to track, target, and contact your target audience.

Tenant Placement & Lease-up Commissions

If you are a landlord, chances are that you have a property manager to handle tenant placement and lease-up coordination. But when you factor in all the additional time you spend on these tasks, it’s easy to see how a little bit of help can go a long way. So here’s an overview of some of the ways a property management software can save you time and help provide you with a better ROI.

Rental Property Tax Deductions

If your property is located in a county that levies a rental property tax, this software can help you keep track of the associated deductions. In addition, most property management software also allows you to view the property tax map – the area of your property is highlighted on the map to give you a sense of what property tax rate you should expect.

Online Lease-Up/Tenant Review Forms

If your property management software offers online lease-up or tenant contract review forms, you can save time, reduce human errors, and have a contract ready within minutes. All you need to do is fill out the online forms and submit your documents electronically. There are also property management software that offers contract-signing functions online, so you don’t have to waste precious time in sitting down with the tenant or wait to receive the signed contract.

Homeowner Association Fees

If you’re a homeowner in a Homeowner Association, there are a few deductions you should enter on the schedule A, line 16 (or Form 1040 Schedule A line 12). These include: Homeowner Association fees, Common Expenses, Parking Fees, Exterior Common Area Maintenance Fees, Expenses for Removal of Snow and Ice Off the Street, Service Fees, Ornamental Fencing, Architectural Fence, and Manufactured Home Fees.

If you've got this option available on your HOA, using the standard deduction means that you’ll qualify for a larger deduction than if you itemize your deductions. Of course, you’ll have to pay a planner or auditor to do the HOA stuff.

You can find details about HOA fees on the HOA’s website.

Auto & Travel

Although many home owners can deduct an auto, vehicle or travel expenses on their taxes, rental property owners have a number of deductions to choose from. Here are some of the top deductions that rental property owners have:

Travel Expenses: When you own rental real estate, you may be able to deduct expenses you incur while traveling. If you collect rent from your tenants, you can deduct meals, lodging, taxicab fares, and other travel expenses you incur while away from your property. If you use your car for business, you can deduct the washing, cleaning, and maintenance of your car.

Auto Removal: If you allow your tenants to drive your rental property’s car, you can deduct the cost of parking, purchasing, and insuring your vehicle.

Auto Maintenance: If you make additional repairs on your rental property’s home owner’s insurance policy to your rental property, you can deduct any depreciation cost.

Property Taxes: If any taxes you pay on your property are not deductible on your tax returns, you can deduct the cost of taxes on your rental property on your personal tax return.

Property Insurance: You can deduct the actual cost of your insurance policy, including agent fees.

Auto Expenses

Rental Property Tax Deductions for Other Travel Expenses

Rental property tax deductions are one of the biggest steals in the world of taxes for landlords. They can save you hundreds, and sometimes thousands of dollars a year. Typically, these deductions are calculated from the rental income portion of the Schedule E Profit/Loss from Business form.

Here are the types of expenses, based on Form 1040 tax return instructions, that you can deduct on your Schedule E. All of these expenses can be greatly reduced from your cost with the list of rental tax deductions listed below.

Real estate taxes. Although you have first-year depreciation write off, you can still deduct real estate taxes, which are provided in the 1040 tax form instructions.

How many types of real estate taxes are there? There are three, as listed below.

{1}. ) Local taxes: These taxes are imposed by municipalities, including cities, towns, villages, counties, boroughs, and school districts.
{2}. ) General property tax.
{3}. ) Real property — special tax, such as a school tax, church tax, political subdivision tax, and any other special tax.

Condo fees and deposits. Note that the IRS does not allow a deduction for most condo fees and deposits. However, there is an exception to this rule. If the condo fees and deposits represent less than 10 percent of the total rent received, they may be deductible on Schedule E.

Supplies

These are the main supplies we use in our business to purchase on the spot, pay shipping and any other fees and receive cash back to our company account. This will be our third year to buy this way and we feel it is the best way of purchasing supplies at wholesale prices.

Property Management

The more money you have in a taxable account, the more you are able to save on taxes, grow your money, and use the savings toward your retirement. Your aim should be to see this money invested in tax-efficient funds such as Roth IRA's or broker's margin trading accounts.

Similarly, there are a lot of tax benefits that can help you keep more of the rental property appreciation in your pockets. The deductions you can claim depend on what’s allowed at the state level. These tax benefits can help you save both time and money as you take care of your rental property.

Fundamentally, landlords have the ability to deduct all of the expenses that they incur in owning a rental property such as repairs, insurance, utilities, and mortgage interest. However, many expenses are not deductible at the federal level or at the state level.

The obvious expense that should be deductible is the monthly mortgage payment. Mortgage interest is deductible at the federal level and at the state level. So if you are a bank-owned property landlord, you can deduct the interest on the loan against your property taxes.

If you are a preferred landlord at a bank, you can actually deduct the property taxes too. While you can’t deduct the interest on the loan, you can deduct the property tax and then use that to work out a tax loss carryback to use against your other income.

Tax Benefits of Rental Property You Manage Yourself

Below I have compiled a list of the most common tax deductions and expenses you will incur when renting your property out so you can maximize the tax benefits of renting out property to others.

Common Tax Deductions

To claim a bonus depreciation deduction you'll need to have a reclassification pursuant to Internal Revenue Code Section 168(k). To claim a Section 179 deduction you'll need to meet IRS qualifications and be using the property in your trade or business or you can choose to treat it as a managed property. To claim a Section 179 deduction you'll need to meet IRS qualifications and be using the property in your trade or business or you can choose to treat it as a managed property. To claim Section 179 and bonus depreciation deductions you'll need to meet IRS qualifications and be using the property in your trade or business or you can choose to treat it as a managed property.

Common Expenses

To claim the expense of repairs and maintenance you can choose to depreciate your expenses over an extended period. The longer the time you depreciate the property, the larger your deduction will be. If you are leasing a property you can choose a single percentage depreciation method or choose to depreciate your rental expense over 2, 5, 10, or 20 years.

Tax Deductions If You Engage a Property Management Firm

While you are the person responsible for creating a solid investment plan and ensuring that you do your part to track expenses, you’re not the only one who gets to make out once the rent is paid. If you engage a property management firm and make them aware of property tax deductions, then you can take advantage of the services they provide and still save money.

Property management firms don’t charge you for the services involved in maintaining your property so you can keep the full amount of your rent. This means that your property tax bill goes down even though you’ve engaged a property management firm.

Once you’ve hired a property management firm you may see a substantial drop in your property tax bill. Ask your property management firm to submit a copy of your annual property assessment to you before you pay it to the local municipality.

That way, you’ll be able to compare your property taxes to the rent you pay.

By paying your property tax bill yourself, you’re keeping more of your rent than if you had engaged a property management company.

Tax Deductions If You Hire a Property Manager

Whether you’re renting out your primary residence or purchasing a vacation place, you can deduct certain costs related to your rental property as either –qualified expenses” or –nonqualified expenses.”

Qualified Expenses

Qualified expenses include any expenses you incur (e.g., property taxes, mortgage insurance, property maintenance) as part of securing, maintaining and preparing your rental property for occupancy. In addition, all expenses related to preparing your property for rental can qualify as long as the expenses are paid within one tax year. For example, if you pay for furniture, get new carpets and clean the unit prior to renting, these would qualify as qualified expenses.

Costs you incur to install or repair any item that is or will be part of the primary dwelling will also qualify as qualified expenses. For instance, you may take advantage of the business expense deduction by installing a washing machine in the unit, since it will be used for washing clothes in the unit.

Qualified expenses also include any expenses you incur (e.g., advertising, repairs to the property, general liability insurance) for the purpose of attracting tenants. Any profit you result from these expenses is also considered a qualified expense of the property.

Tax Benefits of Rental Property — Beyond The Basics

Loss Limitations

Interest on the Loss Bills and Recovery of Personal Property Losses.

For personal property losses, loss limitations are available to reduce the amount of income for which you can extend the time to file a return. However, they are subject to a constraint. If the loss occurs in a disaster area, then you cannot claim the loss because it is considered an indirect personal casualty loss. An indirect casualty loss is any diminution in the market value of property as a result of the disaster.

However, if you lived in or used your home for business purposes, any loss in its value as a result of a disaster would be allowed in full to the extent the loss is attributable to the disaster, provided the loss is incurred in a disaster area.

Safety Patrol Fees.

If you paid safety patrol fees as a result of the disaster, then you can deduct the fees on your personal income tax return instead of expenses.

(Source: IRS)

FICA & Self-employment Tax Benefits

Capital Gains Taxes vs Taxes on Ordinary Income

Let’s forget for a moment that Obama is bringing a 55 metric ton of Amur tiger meat or tiger penis or tiger salsa by order of Kim Jong-un but this is getting lost in a convoluted tax conversation.

Anyways, capital gains taxes are taxes on money earned on capital assets (i.e. your earnings on money you invested)

Every dollar you earn is taxed at a different rate which is decided by the IRS. If you have rental income, that will be taxed according to the same rules

However, there are some deductions that can only be applied to rental properties. These are broken into two categories:

Tax Deductions Relating to Renting Your Property Out

Rent is considered ordinary income, which means you can deduct all of your expenses. If you own a 10 bedroom house, if you rent out 5, you can deduct all of your expenses on the other 5

The expenses you can deduct are broken down into four categories:

Tax Deductions Relating to Your Rental Property

General maintenance (cleaning, landscaping, utilities, repairs, etc.

Breakfast Tax

An unfortunate term applied to taxes on wholesale sales in the town of Southampton and Tillesworth, England.

Depreciation Recapture

Claim: Non-Casualty Depreciation Adjustment Claim (IRC – 168)

If the tenant is making improvements on the rental property, the lease allows you to claim a non-casualty deduction. To claim the non-casualty deduction, you have to create a …Non-Casualty Claim.

This will be a large deduction that is taken off the top of your tax liabilities. However, you should be careful about entering into a lease where the tenant provides any extra values for the property. Because these property improvements will no longer be trade-in item and you can claim the entire value as a non-casualty deduction. Therefore, you can deduct the entire property value and not just the building value and the land value. This deduction is known as non-casualty depreciation adjustment claim.

All residential rental property is subject to the non-casualty depreciation adjustment. Even if the improvements are provided by the tenant, you can claim the entire improvement value without any deduction for the cost of the improvements as the tenants improvement allowances.

If you have any further questions about the tenant’s contribution to the improvements or a non-casualty depreciation adjustment claim, then feel free to contact me.

Special Tax Situations Involving Investment Property

Real estate investment is associated with wide array of tax issues and there is no blanket solution to it. As an investor, you will have to find a way to effectively manage the taxation aspects of real estate investment that include calculating the rental income, calculating the depreciation of the property and managing the taxable capital gains. Most of the problems are caused due to the fact that some of these tax calculation are neither text book nor well defined.

Usually, there is a need to seek help from a tax professional to get these issues resolved and sometimes it can be a huge deal when the overall amount that has to be paid is big.

So, we decided to put together a list of the most commonly used tax deductions and benefits of the real estate investors for your reference. It is not an exhaustive list and we have only included the tax benefits for the investment property owners that are narrowly defined but we think that it should help you to easily manage your investment properties and ultimately save taxes. So here is the list of Top 12 Rental Property Tax Deductions and Benefits [+ Free Worksheet]

State or Local Tax Incentives

Tax incentives can come in all different forms … from rebates on commercial tax, reduced property taxes for owners of rental properties, or tax credits for disabled or low income residents. Regardless of where you live, you can adapt your expenses to fit into a state’s tax code.

This is one of the easiest ways to save money, especially for lower income families. Tax credits, which vary from state to state, can help taxpayers lower the overall amount of taxes they pay. Depending on the type of credits available, tax credits can lower your income and property tax bills.

As mentioned above, rental property owners face a unique set of circumstances and challenges. To better prepare you for the many expenses that come with owning a rental property, here are some of the top tax incentives for owners of rental properties.

3 Types of Property Ownership That Affect Tax Benefits

There are three types of property ownership that matter for taxes:

  • Sole Proprietorship
  • Partnership
  • Corporation

Each of these types of ownership has its own set of tax considerations, often referred to as the benefits of ownership.

Our first tax benefit of owning a home for most people is the mortgage interest tax deduction. You can read about the mortgage interest tax deduction we discuss it in the post, 3 Ways To Quickly Boost Your Cash Budget.

But owning a home is not the only or best way to lower your taxes. Taxes can be a big expense that you don’t have to pay; some people can pay for their entire year’s worth of bills with the tax that’s already paid.

Although home ownership is a great tax deduction, that doesn’t mean it’s the only tax benefit of buying a home an often overlooked tax benefit is the opportunity to earn rental income tax benefits that can save you a lot of money.

In this post, we list the top 12 tax benefits of renting property that other than the mortgage interest tax deduction you’ll want to consider before making a decision to rent or purchase.

Frequently Asked Questions (FAQs) About Rental Property Tax Deductions & Benefits

Many owners of rental property are eligible to deduct a number of expenses or to receive a variety of tax credits and benefits that can help them reduce the amount of tax they owe the government.

The rental property tax deduction is often overlooked, but it’s an important tax benefit because it allows taxpayers to deduct a portion of their property taxes from their gross income.

In order to claim the rental property tax deduction, taxpayers must have income from rental real estate, and it must be the taxpayer’s primary place of residence. Rental real estate income includes rental income and other ordinary and necessary personal living expenses.

In addition, taxpayers need to file a U.S. tax return and have property that is classified as rental property. Taxpayers can choose between five different types of property for rental purposes:

Can You Write Off Property Taxes in 2019?

Rental property taxes are the barriers between you and all those great dollars lying under the blue sky. Well, not really. But there’s a pretty good chance that your property tax bill is significantly high. Determined to find funds in other ways? Better get shopping.

Is the Purchase of Rental Property Tax Deductible?

Often, before buying your first home, your plan is to buy in preparation for down payments for future purchases. If you want to invest in a rental property, you would usually like the minimum amount of cash to purchase it so you can make money rather than just spending the money.

So, is the purchase of a rental property tax deductible? Since the answer is yes, let’s take a quick look at where you should keep records of the purchase of that rental property.

Tax Records for the Property Description

This includes descriptions of every part of your property, including square footage, dimensions, number of rooms, and space available to be rented.

Unique Number of the Property

This is unique and includes all the real estate transfer papers as well as a record of the transaction you filed with your real estate agent.

Tax Records for Sale Price

The total price of the property is the sale price. This includes all the cash you paid for the house as well as any close escrow fees such as surveys, recording fees, and other fees.

Tax Records for the Title to the Property

The title to the property is the ownership of the property. This can be found at the county clerk’s office.

Tax Records for the Purchase of the Property

Is Painting a Rental Property Tax Deductible?

Painting the interior and exterior of a rental property gets you one step closer to getting your home to look like new. But is the cost of painting a rental property tax deductible? You bet!!

The Internal Revenue Code, Section 280A(a) provides a deduction for –additions to the basis of stocks in trade or business of retailer if such stock was held for sale.” Section 280A(a)(2) defines –stock in trade” as –personal property sold in the ordinary course of a trade or business.” The Code’ purpose of this deduction is to help an individual take a tax deduction for the cost of personal property that is used in a business that the taxpayer is not in, or does not have the time to be in, actively managing.

A painting job like this substantially increases the value of your home and is a significant addition to the value of your property. Therefore, a taxpayer may deduct the cost of the painting and still have the painting eaten up in the tax bill as a depreciation expense.

What do I have to do to have the painting be tax deductible?

To be tax deductible, the painting needs to meet two tests:

Can I Write Off Lost Rental Income?

When you are gainfully employed, it can sometimes be difficult to record your work expenses on your tax return. Whether you have a company-issued cell phone or a personal phone, maintaining your business expenses can be a challenge.

Depending on how much a taxpayer is required to use a professional tax preparer, a professional rewrite service or an online tax software can ease the tax preparation requirements. However, choosing to take professional help may have an extra cost on your part in the form of a service fee. It is beneficial to keep good records of documents, receipts, invoices, phone calls, and other expenses so that you can prove your expenses.

Having these records will also allow you to re-use these professionally gathered records when you file your personal income taxes. In most cases, you may deduct the cost of the professional help.

Another major benefit related to tax deduction is the ability to offset losses incurred from real estate, such as rental property. There are several ways that you can offset your losses for the year, including the following:

This can save property owners money, and allows them to continue to collect rent from their tenants.

Some landlords can claim the amount of their residential rental expenses, including expenses such as mortgage interest, property taxes, utility expenses, home maintenance and depreciation of rental property.

Are Appliances for Rental Property Tax Deductible?

The cost to rent an appliance if you own it is much higher than if you rent it. If you rent it you probably cannot deduct the price, but if you own it you can deduct the cost of the appliance.

This is true whether the appliance is a traditional washer and dryer or a fitness center or a sprinkler system.

This benefit to deductible appliance costs is true whether you are an individual, corporation, partnership, limited liability company or a trust.

With new rentals every year your old appliance may be applied toward the deduction.

However, deductibility is determined at the time of acquisition (not the time of purchase). <<Click here for example>>

Manufacturer specifications, maintenance contracts, warranty and trade-in allowances are not allowed.

Can You Deduct Mortgage From Rental Income?

You had to pay a lot of money to buy your house, right? And you can deduct some of that cost on your taxes, right? It’s a bit ironic, don’t you think? You pay a lot out of your pocket in order to secure your nest (income), and then you pay your landlord in order to secure your own nest (income) for when you need to use it (rent). The Internal Revenue Code allows for a deduction in your income on the interest on a mortgage for a qualified residence. But there are some conditions to meet. For more information about deduction of mortgage interest on rental property see IRS Publication 936.

Bottom Line

Rental Tax Benefits + Free Rental Property Worksheet for a Great Return on Investment!

Ready to get a head start on your first rental property? We’ve compiled twelve of the most powerful tax deductions and tax benefits for landlords.

The list also includes not just the usual “safe” deductions, but also some of the less obvious tax benefits you’ll find in there. On top of all this, we’ve also included our Rentventory software to get you started with your very own high-performing, passive income flipper, with less hassle, with very low risk!

Any tax preparation expert’s worst nightmare.

Unless you’re a realtor, this list of rental property tax benefits isn’t one you’ll likely find anywhere else.

Here’s why: realtors’ biggest advantage is that they know when and how to take advantage of the tax code, and routinely market them and supply them via their real estate agency.

They automatically get these benefits and take advantage of them every tax year, and most of this information is not available to the average landlord.