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February 6, 2023


If you don’t know the rules, it’s difficult to win any game. It’s no different as a landlord. It can frequently feel like a game of chess where the pieces are always shifting as you balance meeting the requirements of your tenants, making timely insurance and mortgage payments, and settling up at tax time.

Success in the rental industry is the goal, but it’s not always feasible. It’s imperative to take every possible step to optimize revenues and prevail because, according to AdvisorSmith, 36% of rental businesses fail in the first five years.

Keeping expenses to a minimum is one approach to keeping more of your earnings. Most landlords are already aware of how crucial it is to know how to set the appropriate rental rate and lower the likelihood of evictions by doing extensive renter background checks using a reputable provider like SmartMove.

There are a variety of tax benefits available to property owners and managers, but fewer landlords are aware of them. These options could result in significant savings for you. It’s more crucial than ever to help protect your investment, especially since many tenants and landlords are beginning to recover from a rough few years financially.

The 15 deductions listed below may be useful to you during tax season. Some of these tax benefits are available to all homeowners, but several only apply to rental property. To get the most out of your return, make sure to ask your tax advisor or CPA whether any specific tax deductions apply to you.

Keep the following deductions in mind when you prepare your tax returns for this year:

  1. Traveling Long Distance
    You can write off the cost of your travel expenses even if you have to drive far to check on your property. Car mileage, travel expenses, and lodging charges are a few examples of deductible expenses.
  2. Mortgage Interest You probably have a mortgage if you didn’t buy your rental home altogether. If you do, you are giving a bank interest. Landlords may write off their mortgage interest as a rental charge.All homeowners are eligible for this well-known rental property tax exemption. However, since it’s frequently the largest deduction available to them, it’s particularly crucial for landlords to use.
  3. Taxes on Personal Property Depending on the value of the equipment and furniture you use for your business, your local government may require you to pay personal property taxes. Although the majority of landlords are aware that they can depreciate their personal property, did you realize that you can do so more quickly for personal things used in and for your rental business?

You can save more money by fully depreciating personal property inside the rental unit over a shorter period of time with the Modified Accelerated Cost Recovery System. For instance, over a five-year period, furniture, carpeting, and appliances can all be depreciate. Driveways and fences are examples of objects that might depreciate at a 15-year rate. On the IRS website, you can look up which asset class your property belongs to.

4. Repairs
The IRS divides up repairs into two categories:

  1. Making improvements to the property that raises its worth
  2. Restoring items to their original state (maintenance)

Repair and maintenance expenses, however, can lower in a single year whereas upgrades must be capitalized and deductions are taken as depreciation over time.

The BAR acronym can assist you in determining if your repairs are merely property maintenance or may qualify as improvements:

Does the modification address a problem with the property that existed when you purchased it? Does it in any way increase or improve the property physically?

Will you use the property in a new or different manner than you had initially planned when you bought it?

Restoration Does the modification restore the building to its original state? Have you previously recorded the damage as a loss?

If the IRS determines that your repair qualifies as an improvement and must depreciate, you should be able to answer yes to the aforementioned questions.

  1. Local Travel
    It’s common for landlords to frequently check on their tenants and assets. Performing upkeep, repairs, or renovations may also be a must on-site. You may deduct the expense of travel in one of two ways if you use your own vehicle to make the trip:
  • Actual costs
  • IRS standard mileage rate.
    • The IRS standard procedure comes with a warning. A landlord must employ this technique in the first year the vehicle was put to use for rental business purposes in order to be eligible. The actual expense approach enables you to write off both depreciation and the actual costs associated with the car.

The local travel deduction, according to the IRS, can cover expenses like gas, oil, lease payments, licensing and tax payments, repairs, tolls, and parking. To determine which option is most advantageous to you, calculate your deduction both ways.

  1. Eviction-Related Legal Fees
    Eviction proceedings are exceedingly stressful and can cause small rental enterprises to go bankrupt, making them frequently a landlord’s worst nightmare. You can write off court costs and attorney fees if the worst happens and you have to evict a renter or take legal action against them.

Even if some of those costs can be written off, the financial blow could significantly reduce your profits. The average cost of eviction-related expenditures was $3,500. How would your company do with such high costs?

In addition to the financial expense, there is also the stress of not knowing what will happen next and the tremendous tension of a continuing legal dispute. While collecting landlord tax deductions is an excellent way to save money, it is preferable to avoid evictions altogether by carefully and continuously screening your tenants before allowing them to occupy your property.

You can strengthen your tenant screening procedure with thorough, nearly fast background checks that cover criminal history, renter credit reports, and eviction history. You can make quicker, more educated screening judgments if you have a thorough understanding of a rental applicant’s history and performance.

  1. Home Office
    Even if it’s just a small portion of a room, any home office space that you employ specifically for renting out rooms is deducted as a business expense. A deductible space needs to be a location used solely for rental activity and as the main gathering place for clients and consumers.

Reminder: Any equipment shall be solely for the conduct of business. For instance, you shouldn’t use your work computer to play games or for other private purposes.

  1. Compensation For Employees and Contractors
    You can write off the wages of any groundskeepers or property managers you engage as a legitimate rental business expense. The same is true for independent contractors like electricians and carpenters.

One advantage of using independent contractors is that you don’t have to pay half of the Social Security and Medicare taxes or withhold federal taxes from your income. However, if you pay someone more than $600 in a calendar year, you must submit IRS Form 1099-MISC.

Don’t forget to account for employee entertainment and food costs. Turbo Tax reminds Landlords that employee gatherings like holiday parties and summer trips are fully deductible. You can write off 50% of any costs you incur when working with a potential customer or business partner.

  1. Losses due to Causality
    You can claim an entire or partial property loss on your tax return if your property suffers any damage as a result of an unknown occurrence, such as a fire or a natural disaster.

If you do have insurance, you must substract whatever insurance recovery you receive from the total of your claimed casualty loss. Losses that have full insurance coverage are not subject to deductibles.

  1. Decreasing Value
    You can subtract depreciation from the cost of goods you own for longer than a year. Over a number of years, tiny changes make the price of certain items. For instance, rental properties depreciate over a period of 27.5 years. Accordingly, you can deduct roughly 1/27 of your rental property each year.

The IRS actually mandates depreciation. Depreciation claims might help you avoid legal trouble in addition to saving you money. Furthermore, whether or not you have claimed depreciation, the IRS may impose a 25% recapture tax on you if you sell the asset for more money than its depreciated worth. Claiming the depreciation makes more sense than having to later pay taxes on a benefit you never received.

  1. Insurance
    Your rental insurance can become lower. This covers landlord liability insurance as well as fire, theft, and flood insurance for your rental property. The price of your employees’ health and workers’ compensation insurance is also deductible if you have employees.

12. Capital Expenses
We’ll cover how landlords can write off long-term investments. Tax regulations distinguish between current and capital expenses when referring to a rental property firm.

  1. Purchases that to endure longer than one year and produce income, later on, are capital expenses. This could involve purchasing vehicles, equipment, or real estate, but these are not the only capital expenditures. The IRS considers these purchases to be investments, therefore they must be written off (or capitalized) over a period of years.
  2. Current expenses are the ongoing costs for running your firm on a daily basis, such as rent and utilities. Current costs are fully deductible from gross rental income in the year of incurrence.
  1. Professional Services
    Other forms of expert aid may also be taken, in addition to the legal services already given. Not only is it a good idea, but paying for tax advice is also deductible. You can write off the cost of employing an accountant or an attorney as a business expense if it is directly relevant to your rental business.

Hiring a tax preparer might help you keep away from missing any available deductions because IRS laws are frequently updated or amended. The same deduction is available if you utilize tax preparation software if you choose to complete your taxes manually.

  1. Operational Costs
    A lot of the things you buy for your rental property during the year can be considered operating expenditures and written off in the year you buy them. These costs are described as “the usual and necessary expenses for managing, conserving, and maintaining your rental property” on the IRS website. According to the broad consensus, the following expenses are appropriate for a rental business:


  1. Maintenance
    Although you might be tempted to lump maintenance under repairs, maintaining your home doesn’t always require that something is broken. For instance, even when there are no significant difficulties, regular maintenance is performed on the landscape and pool.

Any equipment required for maintenance or cleaning, such as lawnmowers, weed eaters, or paint sprayers, may also be written off. If you have any questions about whether you should depreciate these tools, consult a tax expert. The same is true for janitorial and cleaning materials. You may even write off homeowner association dues as a rental expense.

Avoid getting stuck in a corner when playing the game of rental property management. Utilize these tips to raise your chances of success.