The life of a landlord certainly isn’t easy. From maintenance emergencies to tenant disputes, there’s rarely time to relax. The good news? During tax season, all that hard work might just pay off, literally.
April 15th is right around the corner, which means it’s time to start prepping for tax filing. For landlords, this means looking into potential deductions, and there’s a lot to sort through. Whether you manage a single rental, a multi-family property, or go through rental property management companies in Orange County, there are important tax deductions to keep in mind.
Here, we break down the different tax deductions you can take advantage of as a landlord.
Interest and Insurance
Like any homeowner, if you carry a mortgage on any of your rental properties, you can write off the interest payments.
What’s more, you can also deduct any interest you’ve paid on home improvement loans and interest from credit cards used for items or services for your rental property. Keep in mind, this only applies to interest, not your monthly loan payment.
Along with interest, you can deduct the premiums for any insurance related to your property. Some examples include landlord liability, flood, theft, or fire insurance. If you’ve hired employees, the amount you pay for their health and workers’ compensation insurance is also included.
Property Repairs
It’s one of the most dreaded situations for landlords, something’s broken. Property repairs are never fun, but the silver lining is you can write them off. Repairs can be claimed as tax deductions as long as they are completed within the same year you file your taxes.
So, what counts as a deductible repair? Some of the most common include repainting, replacing broken windows, plumbing and electrical repairs, roof repair, fixing gutters, or replacing a broken smoke detector, among others.
Of course, it’s important to differentiate between a repair and an improvement since they’re not the same. Improvements are generally meant to increase the property’s overall value (adding hardwood floors, renovating a kitchen, etc.). In contrast, repairs keep the property livable, meaning they do not add any extra value. They simply restore any damages to their original working condition.
You can deduct the full cost of repairs on your taxes, but improvements are calculated based on a depreciation schedule. Since improvements add value to the property for years to come, you can only claim a percentage of the cost each year.
Depreciation
Did you know your rental property loses value each year? This is called depreciation, and it can actually be used to your advantage.
Through depreciation, landlords can deduct a portion of the cost of the property over many years. According to the IRS, the lifespan for residential rental property is 27.5 years. To determine your annual depreciation expense, the formula is pretty simple, your property’s actual value is divided by 27.5.
For example, let’s say you have a rental property worth $100,000. When you divide that by 27.5, you come up with $3,636. That’s how much you can deduct on your taxes each year.
It’s important to note that depreciation applies only to the property value and does not include the land.
Home Office
The job of a landlord requires a lot of running around, but you still need a spot for meetings and paperwork, right? Whether it’s an office in your home or a rented space, you can include it in your tax deductions.
Of course, simply adding a desk and chair to your room isn’t enough to qualify as a home office. Your workspace needs to be the primary location for any business relating to your rental property. In other words, you actually need to meet with people there, whether that’s tenants, prospective tenants, vendors, etc.
Keep in mind, a shared space with your kids, for example, doesn’t count. Your office needs to be just that, an office. It should not serve any other purpose but to conduct business for your rental property.
Professional or Legal Services
Have you hired a lawn care or pest control service to take care of your property? Do you work with a property management company? Good news! You can deduct these expenses come tax time.
You can deduct any legal or professional service fees associated with your rental property, including (but not limited to):
- Attorneys to help with finances
- Attorneys for eviction proceedings
- Accountants
- Investment advisors
- Property managers
Travel Expenses
Find yourself traveling all the time? As tiring as it is, it has its tax benefits. You can deduct fuel, airline, hotel, and meal expenses as long as they are strictly for business.
Travel deductions include trips to your rental property as well. Maybe you need to head over to talk with a tenant, collect rent, make a repair, or show the property to a prospect. Any expenses related to your rental property can be included when it comes time to file.
Landlord Tax Prep: Stay Organized
Considering all of the tax deductions at your disposal, it’s not only important, but necessary to stay organized. Preparing all of your essential documents ensures you won’t miss out on deductions, ultimately saving you money. Here is some of the most important paperwork to hold on to:
- Tenant leases
- Legal documents
- Property title and deed
- Insurance policies
- Mortgages and loan interest payments
- Receipts for repairs and improvements
- Rent and security deposits received
- Travel expense receipts
- Employee wages paid
- Office (or home office) expenses
- Professional service fees
- Advertising costs
Rental Property Management Companies in Orange County, CA
As tax season approaches, you’re probably feeling a bit overwhelmed, let us help ease your stress. You focus on your taxes, and we’ll take care of the rest.
If you’re looking for rental property management companies in Orange County, the team at Genuine Property Management is anxious to help. We understand that a landlord’s role isn’t easy, and we’re ready to tackle the toughest aspects of the job for you. We screen potential tenants, help you avoid legal issues, market your rental, and take of maintenance and repairs.
At the end of the day, the benefits of being a landlord don’t just come from tax deductions, they come from an innovative property management company too. The best part? We offer a 100% money-back guarantee in the first sixty days if you’re unhappy with us.
Ready to make your life easier? Contact us today to see how we can help.
