Top Tax Deductions for Landlords

As a result of the economic downturn, there are a number of people who have acquired the new role of rental property manager, because they cannot sell homes they’ve either built, or improved. The definition of a rental property is rather fluid: the property has to be leased out for more than 14 days per year, and cannot be lived in by the owner for more than 14 days of the year. The good news is that there are many options for the rental property manager, as far as deductions are concerned.

*Operating Expenses. First and foremost are the expenses that are involved in merely having the property to begin with, such as mortgage interest and insurance.

*Depreciation expenses. Most people are aware of the fact that homes can be depreciated over time; however, many don’t know about “cost segregation,” which can speed up the process. This deduction allows you to split out the costs of the home by separating out the cost of the appliances and improvements, then depreciating them all individually.

*Property Improvements and repairs. While many repairs are expensed, some can be capitalized and added to the value of the asset, then depreciated. Repairs and improvements that may be capitalized are those that add to the value of the home, whereas ordinary operating expenses are those that help to maintain the property. This is a bit of a nebulous consideration, so a conference with your accountant is in order, should you have questions about it.

*Credit Card expense. Any interest on credit cards you use in the course of running your rental property business is deductible, as are in service charges or fees (if the card is used only for your rental and not for personal use)

*Home office expenses. While some are reluctant to deduct such expenses because of audit risk, it’s a legitimate deduction. Make sure you have a defined space that is devoted to your business (which may include merely meeting with potential renters. You may want to “map out” your office, to show that it is used separately from the “personal” living areas of your home.

Being a landlord is one of the easiest ways to add deductions to your return. While it isn’t for the fainthearted, it can make a considerable difference in how much you owe in taxes. Make sure you see your accountant, so he can assist you deducting all you possibly can. The difference in what you owe can be astounding, and well worth the effort.