Being a landlord is a lot of work, but it’s well worth the effort if you want to be your own boss and earn some extra cash. The best part about being an entrepreneur is that you get to reap the rewards of your labor and take advantage of all the tax deductions available to landlords. If you’re not sure how to find these deductions, never fear — here are 11 top tax deductions for rental property owners.
- Property Taxes
Property taxes are one of the most important deductions that landlords have access to. If you own a home and rent it out, you can deduct the property tax payment on your income tax return as an expense. This is because the home is considered a business and part of your income-generating strategy to make money.
If you’re a landlord, make sure to check what your property tax bill looks like each year before making your payment. You want to deduct only the amount of tax that matches what’s assessed against your property; otherwise, you could end up over-or underpaying your taxes.
- Insurance on Your Property
Another important deduction that landlords can take advantage of is any insurance premiums or payments for insurance deductibles you’ve made. These are considered business expenses since you get the property and its contents insured as a business venture. The more valuable your property is, the higher your insurance premiums will be, so if you have any deductible amounts, make sure to claim those on your taxes.
- Maintenance and Repairs for the Property You Rent Out
If you want to maintain a good relationship with tenants, you need to make sure that your property is in good condition. You can deduct any expenses that go into maintaining the property, including cleaning, minor repairs, and painting.
- Utility Costs You Deducted for the Property You Rent Out
You pay an electrical bill and a water bill every month for the same reason — to maintain your property. These expenses are deductible since they’re a service that you provide to your tenants. Make sure to include these in your income as an expense you incur in business.
- Complimentary Services for Your Tenants (Prime Examples: Landscaping or Lawn Care)
If you have a garden, take pride in its maintenance and take advantage of it as a source of passive income. But never overlook the value of your lawn, which you can make better by aerating it and spending time on it. If you make a habit of maintaining your grass, it can be an important source of revenue for you in the future.
- Additions, Renovations, and Repairs for Your Property
If you want to make something of your property, it’s probably worth investing in additions and improvements. If you made rental payments to hire contractors or bought items like landscaping supplies, those expenses will aid your bottom line and help your property maintain its status as a desirable place to live in.
- Utilities You Payments for Watching Over Your Property
If you use a service to do property care, such as an in-home alarm system, you can deduct the rental payments you make. If your tenants set off the alarm accidentally, it’s not their fault — you need to protect your home against dangers like fire and burglary. If this happens, make sure to report the incident to your renters so they can be held responsible legally.
- Paying Your Tenants for Holding Over Their Lease Contract
You’re required to pay tenants penalties for breaking their lease agreements if they don’t move out within 30 days of receiving notice from the landlord. You’ll also have to pay them for any unpaid days during which they refuse to leave.
If you begin a new lease agreement with a tenant who’s not aware of this, pay special attention to the lease’s penalties if the tenant doesn’t abide by it. The landlord is responsible for making sure that the rules are clearly spelled out and that penalties match up with events that can lead to the tenant violating the contract.
- Rent Paid To Your Tenants Out of Current Income
Rent paid out of current income for rental properties is another important deduction landlords can take advantage of. If you pay your tenants by check, make sure that the money comes out of your current paycheck instead of cash, and claim the amount as income. If you charge rent for a property you own but live in yourself, you’re not allowed to deduct it — if you choose to live in one of your properties, it’s considered a second home instead.
- Rental Property Losses/Losses from Rental Income
Most landlords make their profits on rental income from month to month. If circumstances like poor rental decisions or low rent mean losses overall during the year, those losses count as an expense that reduces taxable income.
- Paying Off the Rental Property Debt
If you’re buying a rental property, it’s a good idea to get a mortgage loan for the property. Doing this will allow you to deduct your monthly mortgage payments as an expense — if you pay off your mortgage early, that’s allowed too and will reduce the amount of interest you have to pay on the loan.
Conclusion
While many landlords don’t take advantage of tax deductions for rental property owners because they are unaware of them, it pays to do your research and get educated on what expenses are deductible and which aren’t.
It may be worth your time to consider how much income you can make from a property you own and rent out, and decide if the potential of future deductions is worth it. Some tax deductions are better than others — maxing out your child care reimbursements with a plan to work part-time at home could be a smart decision if it can net more money for expenses later on.
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