If you’re a landlord, you know how expensive managing and maintaining your rental property can get. Often, you’ll spend thousands of dollars a year just on expenses related to your property. But, did you know that you might be able to deduct most of these expenses on your tax return? Here are 3 tax deductions that will help you save the most money.
Repairs, replacements and improvements, and maintenance
One of the main and most common deductions that landlords can claim on their tax returns is for repairs, maintenance, and improvements to their property. The IRS has published guidelines on what qualifies for this deduction. It is important to note that deductions differ for all three. Here are the differences:
Generally, the IRS considers a repair a mandatory change that is necessary to restore the property back to its original state. Some examples of qualifying repair expenses include fixing broken appliances or windows, repainting, filling holes in walls with plaster, and fixing damaged gutters or floors.
In most cases (if the repair is within reason), you are able to deduct the total cost of repairs from your tax return.
For replacements and improvements:
The IRS lumps replacements and improvements together. For this reason, and for tax purposes, replacements are almost always considered improvements.
If you choose to do replacements instead of repairs, you won’t be able to claim any deductions on your tax return for those expenses. Instead, you’ll be able to depreciate the value of your property over the next 30 years.
Similarly, upgrades such as replacing a roof or redoing your driveway to have pavement instead of gravel are all considered improvements and cannot be deducted from your tax return.
It is always recommended that you do regular and preventative maintenance. This will prolong the time that you will be able to perform repairs without having to replace anything. Thus, this will allow you to keep deducting repair expenses year after year. The cost of maintenance is always deductible.
As a landlord, you spend a lot of time traveling from home to your property. Travel expenses related to the management of your property can be deducted from your tax returns. However, you must keep in mind that qualifying travel expenses have to be related to your business in some way. Personal travel expenses for leisure activities are not allowed. If you qualify for a travel expense deduction, you can do so in either of the following:
The standard mileage deduction; or
Deduction of actual expenses (gas, repairs, etc.)
In addition, some overnight travel expenses may also qualify for this deduction. If you own rental property in a different state and are traveling via plane or other forms of transportation, you will be able to deduct this cost on your tax return. Likewise, you’ll be able to deduct the cost of hotel accommodations and any other expenses such as business meals with clients, business partners, tenants, or other business associates.
We recommend that you keep track of all of your travel expenses and make sure that you can justify them as a business expense. If you can’t, then it’s probably best not to include it as a deduction in your tax return.
You as a landlord are responsible for the upkeep and general maintenance of your rental property. However, it’s impossible to do it all by yourself. If you’ve hired independent contractors such as plumbers or electricians, you’ll be able to deduct their wages on your tax return. In addition, you can also deduct the cost of any material you needed to purchase for them to complete your job. For example, if you purchased new piping for the plumber to install or new wiring for the electrician to connect, those are both qualifying expenses.
You can also deduct the salaries of anyone working for your property such as a front desk manager or doorman.