Tax Incentives for Landlords
Top 15 Tax Deductions for Landlords
Before claiming any of these deductions, be sure to have detailed and thorough records to back them up. The IRS scrutinizes these deductions (some more than others), and you need to be prepared should you get audited. If you fail to have proper receipts and cannot validate the business necessity of each expense, you will have to pay the amount due, with interest, if you get audited.
1. Loan Interest/Points
If there is a mortgage on the property, the loan interest will probably be your single largest deductible expense.
- Mortgage Interest (primary & secondary)
- HELOC Interest for loans used to repair or improve the property
- Credit card interest on items used for the property
- Mortgage Points to purchase or refinance a rental property
Keep in mind, you can only deduct interest on money that was actually spent on your rental business. Therefore, you wouldn’t be able to deduct the interest of a withdrawn line of credit that is sitting in your bank account.
2. Depreciation of Assets
There are, in general, three types of costs you need to capitalize and depreciate:
- The value of the structure, not the land
- The value of improvements – such as appliances, carpet, windows, countertops, etc.
These expenses cannot be deducted in a single year, but rather must be spread out over multiple years.
Often the real estate taxes are paid through the mortgage company, and therefore show up on the Form 1098 that is sent from the bank.
Other business-related wage taxes, permit fees, or personal property taxes are considered allowable deductions as well:
- State, County and City Taxes
- Social Security Taxes for Employees
- Medicare and Unemployment Taxes for Employees
- Personal Property Tax/Vehicle Tax
- Permit Fees/Inspection Fees
Repairs are defined as any effort to maintain the current condition of a property or asset.
- Painting/Spot Patching
- Plumbing Repairs
- Air Conditioning Repair
- Fixture Repairs
- Labor Costs/Contractors
- Incidentals related to a repair
- Rental Fees for Tools/Equipment
Maintenance costs are often confused with repairs, however with maintenance, you’re not necessarily fixing anything. For example, the lawn will always need to be cut but it is never really “broken.”
You can also hire a pest company to treat the property every few months to prevent further infestations, even if the original pests are long gone.
- Landscaping and Tree Trimming
- Homeowner Association Fees
- Pool Cleaning, Chemicals and Maintenance
- Pest Control and Treatment
- Tune-ups on Lawn Mowers, Chain Saws, Leaf Blowers, etc.
- Light Bulbs
- Smoke Detector Batteries
- HVAC Filters
- Janitorial Items
6. Insurance Premiums
All business-related insurance premiums are tax-deductible.
- Homeowners Insurance
- Mortgage Insurance Premiums
- Fire/Damage/Liability Insurance
- Flood Insurance Riders
- Theft Insurance
- Workers’ Compensation Insurance
- General Liability Insurance
- Personal Umbrella Insurance
You can deduct the cost of any rental property utilities that you pay for. You are still allowed to claim utility expenses even if the tenants reimburse you later, but you also have to claim that reimbursement as income.
- Heating Oil
- Water & Sewer
- Trash & Recycling
8. Travel Expenses
Any long distance travel to visit your assets or to conduct rental business can be tax-deductible as a business expense.
- Airline Fares
- Car Rentals and Taxis
- 50 percent of meal expenses during long-distance travel
When expensing business vehicles, the actual asset must be depreciated over multiple years, however the upkeep can be deducted in the year the expense was incurred.
You have the option of deducting actual expenses, or utilizing a standard mileage rate of 56.5 cents per business mile driven (as of 2013).
- Business Vehicles (depreciable)
- Mileage or Gas/Maintenance/Usage of Business or Personal Vehicles
10. Management Fees
Even the best landlords need help from time to time. If you hire a property manager, or even an on-site manager, you are allowed to deduct that expense.
- Property Management Companies
- Individual Property Managers
- On-site Manager
- Condominium Association Fees
- Special Assessments
11. Legal and Professional Fees
If you need to hire a pro, be it a lawyer, accountant or tax professional, you can expense the cost. If you ever have to evict a tenant, you can expense all reasonable court and filing fees.
- Accounting Advice
- Professional Tax Preparation
- Tax Preparation Software (like TurboTax)
- Structural Engineering and Consulting
- Legal Fees
- Lease Review and Editing
- Court Filing Fees
12. Office/Operating Expenses
A home office deduction is one of the most commonly flagged deductions by the IRS – and for good reason. Many business owners abuse this deduction, but it should be utilized if you conduct business in your home. Keep great records for the time you spent using that space for business and logically subtract any personal usage.
Personally, I don’t expense the square footage of my home office. In my opinion, it’s not worth the headache.
- Ink & Printer Paper
- Pencils, Pens, and Staples
- Rental Software (like Cozy)
- Legal Forms
- Rent Paid for Office Space
- Square Footage of a Home Office
- Phone Bills
- Radio, Newspaper, Online Ads
- Signs and Banners
- Ads in Phone Books
- Printing and Postage for Mailers
- Commissions to Managers and Salespeople
- Commissions for Tenant Referrals
15. Start Up Expenses
Stephen Fishman, J.D. says, “Any expense that would be deductible as an operating expense by an ongoing business is a start-up expense when it’s incurred before a business begins. Unlike operating expenses, start-up expenses cannot automatically be deducted in a single year. This is because the money you spend to start a rental (or any other) business is a capital expense—a cost that will benefit you for more than one year.”
The maximum allowable deduction for start-up expenses in the first year is $5000.