Because of the downturn in the real estate sales market many people have become landlords for the first time.
This post provides a brief list of those expenses available to landlords as a write off against their rental income.
Advertising
You can deduct the cost of amounts you pay to market your rental property, including, but not limited to, the cost of newspaper and similar print ads.
Fixing-up expenses
You can deduct the cost of repairs you make to your rental property. A repair keeps your rental property in good condition and is a deductible expense in the year that you pay for it. Repairs include, but aren’t limited to, painting, fixing a broken toilet and replacing a faulty light switch.
Improvements (Depreciation)
Improvements are expenditures for things that add value to your property. They are not deductible in full when you pay for them, but must be deducted ratably (depreciated) over a specified period of time.
Improvements include, but aren’t limited to, a new roof, patio or garage.
Cost Segregation
Most landlords are also renting appliances like refrigerators, ranges, dishwashers and washers and dryers along with the rental of the premises. These items, to the extent that their cost can be segregated from the rental structure itself, can be depreciated over a much shorter period of time yielding a much greater tax benefit to the landlord.
Interest
You can deduct the amount of interest expense you pay on any debt that is secured by the rental property.
Automobile Expense
You are entitled to a deduction for the use of your vehicle for anything connected with the rental and/or upkeep of the premises. We suggest you keep a detailed log of such vehicle use that shows the dates and times you used the vehicle and the amount of miles you drove in connection with that use.
Legal and Accounting
You are entitled to deduct the cost of legal and accounting advice you receive in connection with your rental property.
Insurance Premiums
You may deduct the premiums you pay on insurance policies related to the leased premises.
Miscellaneous Deductions
Here is a short list of some additional deductions you might have when you are a landlord:
- Cleaning and maintenance
- Broker commissions
- Real Estate taxes
- Utilities (related to the premises)
- Landscaping, snow removal, trash removal
- Condominium/HOA fees
This list is not intended to be exhaustive nor is it intended to be a substitute for the advice of a qualified tax pro.
If you have rental properties, you should speak with a tax professional before you file your tax return to make sure that you are claiming all of the deductions to which you are entitled.
Passive Loss Rules
Generally, landlords are deemed to be involved in what the Internal Revenue Code calls “passive activities.”
The deduction of net losses (i.e. annual expenditures that exceed gross rental income) from passive activities are limited by the passive activity loss rules.
These rules are tricky. For this reason, we recommend that you have an experienced tax professional prepare your return.
5 responses so far ↓
1 Joseph // Apr 4, 2009 at 2:54 pm
Thanks for looking out for the new kids on the block!!!
2 Peter // Apr 4, 2009 at 3:34 pm
Joseph,
You’re welcome and thanks for visiting.
3 Tim Hawkins // Jun 24, 2009 at 2:38 pm
A couple of notes:
Find a good spreadsheet to include ALL income, expenses, and taxes to determine how investing in RE will benefit/hurt you financially.
1) CSS; many more “items” can be depreciated beyond appliances; such as outlets, light fixtures, driveways, fences — pretty much anything that isn’t structure. Also, most CSS companies won’t do SFR’s, we found a company that will do it for $645 and another company that would do it for $795, so shop around and don’t take no for an answer since this can be huge.
2) Depreciation land vs. improvement ratio; CPA’s will use 15 or 20% (based on nothing), or will use the IRS guide of tax assessors split (they say you “can” use those numbers), or refer to the IRS audit techniques guide (ATG) at http://www.irs.gov/irm/part4/ch42s06.html which recommends using the fair market value approach (which I highly recommend; by valuing comparable lots to determine the land side, then by subtracting that from the total purchase price you get the improvement dollar amount), a way, way better method (saved us $6k/house).
3) Home office; the writer didn’t include the use of your home in your rental business (that includes depreciation on your home)
4) Home office “space”; be sure to try both methods of calculating it, square footage and room count. The room count method almost always is better by double.
5) Invest in areas that allow “bonus depreciation”, see IRS pub 4492 and 946.
6) Read, read, read; books are an inexpensive education, check out johntreed.com, great books.
7) Follow the recommendation to have at least 6 months of mortgage/ins/taxes in savings per investment house.
9) good luck.
4 Pam // Nov 18, 2009 at 7:37 pm
11/18/09
Thank you very much for your helpful information. I am a new landlord, researching tax info.
pst
5 LANDLORDS: Gather your documentation for tax planning NOW! - Renting - Apartments, houses, lease, tenant, landlord, agreements, termination - City-Data Forum // Dec 10, 2009 at 12:56 pm
[...] LANDLORDS: Gather your documentation for tax planning NOW! I know there are lots of folks that have mentioned in other threads they are first time landlords. Many of the actual expenses you incur can be used to offset any income you get from renting our your property. The IRS may audit these expenses, or at least ask for supporting documentation. The time to get your files in order is NOW, so that you and / or your tax preparing can they decide if the added scrutiny that you may draw to your return is worth the savings. Here are few starting points: Landlord Tax Deductions Top Ten Tax Deductions for Landlords – Free Legal Information – Nolo 9 Tax Deductions For New Landlords (and 1 big limitation) [...]
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