7 Rental Property Tax Deductions for Property Owners

Posted by: TheGuarantors on December 8, 2021

The best part about being a rental property owner is the extra income you can earn from it. But, if you aren’t taking advantage of rental property tax deductions as a property owner, you’re missing out! There are a lot of ways to increase your income. Read on to know all about the ins and outs of a rental property tax deduction for your property!

How can I reduce tax on my rental property?

Reducing taxes on rental properties

Yes, owning a rental property can be a great source of extra income, but it is also a lot of work. From mortgage interest to repairs and maintenance, the expenses can seem endless. If you're looking for a way to save money through your rental property, claiming rental property tax deductions is the way to go!

The tax benefits of rental properties are huge. But, a majority of landlords are unaware of these benefits and end up paying more tax than they should on their rental income.

Related: Tips For First Time Property Managers in NYC

If you're a rental property owner looking for a way out of your tax woes, here's a list of 7 rental property tax deductions that can help you out:

1. Interest

You must be wondering where interest comes into play in rental property tax deductions. Did you know that interest is the biggest deductible expense for a property manager? In fact, if you borrow money for any business activity, you can deduct your interest too.

As a property owner, you can get a rent tax deduction on your interest payments in a variety of ways. If you’ve taken a loan to buy or improve your rental property, you can deduct your mortgage interest on that loan. Did you use your credit card to purchase goods and services for your rental property? You can get rid of your credit card interest too. Even personal loans you've taken out to pay for items for your rental property are interest deductible.

The Tax Cuts and Jobs Act of 2018 put a cap on the interest deduction for property managers with a rental income of more than $25 million. But there is a way around it too! You can escape this limit by depreciating your rental property over 30 years rather than 27.5 years.

2. Repairs

Property manager savings on repairs

Repairs and improvements to your rental property are part and parcel of your life as a property owner. Did you know that you can deduct the cost of repairs you make on your rental property from your tax? As a rental property owner, though, it is important that you know the difference between repair and improvement. It's more beneficial to incur expenses on repairs than improvements.

If you spend money on improvement, you are making an asset better than it was before. You are either upgrading or replacing things. Repairing, on the other hand, does not make an asset better than it was before. With repairs, you either patch or mend things.

The best way to get rent tax deductions is to repair your damaged assets. Instead of replacing broken items, you'll get the best tax results if you patch, mend, or fix them.

3. Depreciation

Who would have thought the depreciation of your property could save you money? To take full advantage of this you need to think of your rental property as a business asset that loses its worth over time. Understandably, the math isn't simple, but if you deduct the depreciation of your property each year on your tax return, you will be avoiding a lot of unnecessary payments. To avoid any hassles, it's a good idea to seek the help of a qualified professional to get the calculations correct.

Related: Tips For Maintaining a Good Tenant-Property Manager Relationship

4. Pass-through tax deductions

As a property manager, you can deduct up to 20% of your net business income from your income taxes! This is possible because of the Tax Cuts and Jobs Act from 2018. Keep in mind that you can take advantage of this Act only till the end of 2025, unless it gets extended by Congress. This deduction can be incredibly helpful for property owners in reducing a considerable amount of taxes.

5. Travel

Saving money by traveling as a property owner

Did you ever have to drive to your rental building to deal with a tenant's complaint? Or maybe you went to a store to get something from your rental property repaired? The good news is you can get a rent tax deduction on all this rental activity related to travel. All you have to do is add these expenses to the property's tax basis and depreciate them over the years.

As for the vehicle that you use for these trips, you can either use the standard mileage rate according to the IRS website or subtract your actual costs. However, if you make overnight trips for your rental activity, make sure to document all your expenses as the IRS may closely scrutinize rent tax deductions from your overnight travel.

6. Insurance

Luckily for all homeowners, any type of insurance is deductible because it is considered an ordinary and essential rental property expense. Basic homeowners insurance, as well as specific peril and liability insurance, are all eligible for the deduction. Do you have employees? You can deduct the cost of their workers' compensation and health insurance too.

Related: Essential Security Deposit Management Tips For Landlords

7. Legal and professional services

Legal and professional services for property owner savings

You will most likely have to hire professionals to assist you with your work, and these services do come at a cost. Thankfully, the cost of hiring these professionals is deductible. This includes paying a lawyer for advice or assistance as well as the cost of hiring an accountant to help you with your finances. Even if you file your taxes using automated software, you can deduct any fees you pay for that service.

Are you tired of the traditional method of security deposits? TheGuarantors can help in reducing the cost of moving in for your tenants while still ensuring your protection as a landlord. Get in touch for a security deposit replacement with TheGuarantors.