Landlords.. Are You Claiming Your Allowable Deductions?

As a landlord, you should take advantage of the tax benefits you can receive by owning rental property. There are deductions that are not obvious. Expenses incurred to cancel a lease, reimbursements to renters for expenses that they have incurred and many others exist.

  • Interest. Mortgage interest payments on loans to purchase rental property are deductible. Also, deduct interest on loans where funds are used for improvements to property. Credit card interest on credit card accounts used to purchase items or services for the property is deductible as well. Landlords will find interest to be one of the largest deductions available to them.
  • Depreciation. The cost of rental property is recovered over time through depreciation. From the date available for rental use, depreciation can be claimed over a 27.5 year period, unless the property is removed from service by being sold, abandoned, destroyed etc.
  • Repairs. Repairs you make to rental property are deductible in the year the expense occurs. Expenses can include painting, replacing broken windows, plumbing repair, installing new flooring, or plastering walls. To qualify, make sure that 1) the expenses are ordinary expenses in the cost of running the rental property, 2) they are reasonable costs and 3) they are not capital improvements.
  • Travel. If you must travel to a rental property to collect rent, carry out repairs, discuss issues with renters, or attend renter association meetings, you can deduct the cost of this travel. Cost incurred to visit service providers such as plumbers or electricians, can be deducted as well. If travelling from a distance, you can deduct the cost of your hotel as well.
  • Home Office.The use of a room in your home as an office to conduct rental business also provides a deduction of that portion (percentage) of your own rent or mortgage.
  • Losses. Losses from fire, weather damage, or flood can be claimed as deductions. However, you can only deduct the portion, not reimbursed by insurance.
  • Insurance. Premiums on your property insurance are deductible. You will probably have at least fire, theft, and liability insurance.
  • Services. Any fees you pay for services related to the property are deductible. These would include attorney, accountant, and property management fees. Expenses related to real estate investment advise and other professionals who provide you services to properly manage your rental property are also deductible.

However, some expenses are not deductible.

  • Loss of rent due to a vacancy is not deductible.
  • Modifications that are capital in nature such are not deductible. Examples are:
    1. a a new roof
    2. a room addition
    3. a new fence