Start Free Trial
Accounting

Tax Deductible Expenses: Landlords and Rental Income

Contents:

One of the major benefits of being a landlord are the potential tax benefits that you can take advantage of. These deductions allow private landlords to deduct as much as $25,000 worth of expenses each year against their rental property taxes.

To take full advantage of these tax benefits though it is absolutely imperative that landlords keep careful records of all their income and expenses as well as carefully filing their supporting documentation throughout the year.

Using software like Landlord Studio can help keep you organized, allows you to store all your documentation in one handy location that’s backed up to the cloud and even allows you to send invoices and receipts using our handy templates.

Five Big Reasons to Keep Careful Records using Landlord Studio:

  1. It will make it much easier and faster to file your taxes.
  2. Keeping careful records will help ensure you don’t miss anything important which could cost you money.
  3. It will help you file accurate claims – instead of relying on memory and guesstimates.
  4. If you are audited by the IRS you will have proof to back up your claim. Without which your claim will not be honored and you may even have to pay additional taxes and penalties.
  5. Landlord Studio is mobile-first meaning you can easily update your account on the go and even digitize receipts easily using your phone then and there.

dealing with taxes

10 Tax Deductible Expenses for Landlords.

1. Interest

Interest is often a big deductible expense. For example:

  • Mortgage payment interest
  • Interest on loans for improving the property
  • Credit card interest for payments towards goods and services used in a rental activity.

These interest payments can quickly add up which makes the ability to offset these payments back against your taxes very valuable.

2. Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

You should also be aware that the IRS will claim a portion of the depreciated value back upon the sale of the property in a process called depreciation recapture.

3. Repairs & Maintenance

The cost of repairs can be deducted from income tax. However, it should be noted that repairs and maintenance costs do not include expenses or costs from improving the property.

Repairs are defined as any effort to maintain the current condition of the property and provided they are reasonable, necessary and ordinary they can be fully deducted in the year which they occurred.

Examples of repairs include:

  • Painting
  • Plumbing Repairs
  • Air conditioning repairs
  • Fixing guttering
  • Replacing broken windows
  • Labour costs
  • Rental of necessary tools etc. 

Maintenance costs are a little different. These are necessary expenses related to the maintaining of the properties current condition – not fixing things that are broken.

A few examples of claimable maintenance expenses:

  • Pool maintenance and cleaning
  • Pest control
  • Gardening/landscaping or tree trimming
  • Machinery maintenance eg. chain saw sharpening
  • HVAC filters.

4. Personal Property used in the Rental

You can deduct the expense of any property owned by the landlord used in the property.

For example, any furnishings supplied by the landlord, appliances or gardening equipment.

The cost of personal property used in a rental activity can usually be deducted in one year using the de minimis safe harbor deduction (for property costing up to $2,000) or 100% bonus depreciation which will remain in effect for 2018 through 2022. 

 

5. Pass-Through Tax Deduction

Formally known as the Section 199a Qualified Business Income Deduction, and also called the QBI deduction, the pass-through tax deduction is designed to encourage Americans to start small businesses and engage in other entrepreneurial ventures.

In a nutshell, it treats income that comes from certain non-employer sources in a favorable manner.

This was part of the Tax Cuts and Jobs Act, which went into effect in the 2018 tax year. Like most of the provisions in this tax reform bill that affect individuals, it’s scheduled to end after the 2025 tax year.

Specifically, the pass-through tax deduction lets U.S. taxpayers deduct as much as 20% of their business income that comes from “pass-through” entities such as: 

  • LLC’s;
  • Sole Proprietor;
  • S Corporations;
  • C Corporations.

This deduction is scheduled to expire after 2025. 

6. Travel

Landlords are entitled to a tax deduction for most of the driving they do for the purposes of managing and maintaining their rentals. For example, you can deduct travel expenses when you drive to your rental building for a routine inspection or to deal with a tenant complaint, or when go to the store to purchase parts for necessary repairs. 

However, it’s important to note that you can’t deduct the cost of travel you do for the purposes of improving your rental property. Instead, these expenses must be added to the property’s tax basis and depreciated over the 27.5 years you are allowed to depreciate the property.

If you drive between your rentals for business purposes you can:

  • Deduct your actual expenses (eg. gas and vehicle maintenance);
  • Use the standard mileage rate, $0.58 for 2019. (This changes yearly so check the IRS website for current rates).

Note: To qualify for the standard mileage rate, you must use it in the first year you use a car for your rental activity.

If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. 

IRS auditors closely scrutinize travel expenses especially for overnight travel. Which is why it’s vital that you keep concise and detailed records of all travel undergone and the purpose of that travel. 

To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel expenses.

7. Employees and Independent Contractors

You can deduct the wages of anyone hired to assist you in the managing and running of your rental property from your taxable income as this is a rental business expense.

This is for independent contractors, full time employees, or just part-time.

landlord expenses

8. Property Management Fees

Many costs associated with the management of your rental are normally deductible. For example, if you hire a property management company – or if you use a software like Landlord Studio.

Both of these are tax-deductible expenses for active-passive landlords. Other expenses in line with this that are often allowable include listing fees or expenses.

9. Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.

Related: Should you Form an LLC for your Rentals

10. Legal and Professional Services

The final item on this list is fees you pay to accountants, attorneys, advisors or other professionals that help you in the running and management of your real estate business.

You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

Using Landlord Studio to Keep Detailed Records of your Expenses

Landlord expenses

There are a number of ways that Landlord Studio can save you time, hassle and money when it comes to keeping your income and expense records.

1. We’re Mobile

Landlord Studio is available on all devices meaning you can easily update your income and expenses wherever you are whenever you need to. This effectively means you no longer have to sit down at your computer at the end of the day or week and spend hours entering expenses. Instead, enter them as you go.

On top of this, you can easily digitize receipts by taking a quick photo of them with your phone and storing them in your account.

2. Easily itemize expenses with our expense categories

We have created relevant categories based on claimable expense categories in the US for ease of use for our users.

Simply select the relevant category from the drop down and hit save.

3. Manage expenses on an Organization, Property or even individual Unit level.

It’s important you have the correct segmentation of your expenses. We allow you to organize expenses on an organization, property and even a unit level.

4. Advanced Reporting

You can run instant customizable reports through our software to gain a clear financial oversight as well as to help you easily and efficiently fill out your 1040 schedule e form.

5. Create a Schedule E Report

We recently released an updated report template for our US users to make filling out IRS for 1040 Schedule E. This report breaks down your income and expenses on a property by property basis to help speed up the filing of your taxes.

On top of this, you can easily print or email your reports straight from the app!

How To Enter An Expense Into Landlord Studio

  1. Navigate to the relevant Organization, Property or Unit.
  2. Scroll down to the expenses section on the property dashboard.
  3. Tap “Add Expense”.
  4. Enter the expense details:
  • Amount;
  • Select the category;
  • Enter the date due;
  • Select whether or not the expense is paid; 
  • Select whether or not this expense is payable by tenant.

5.Quickly digitize your receipt it by tapping on the icon at the top right-hand corner – select take photograph and take a picture of your receipt.

6. Hit “Save”.

NB: You can also set an expense to recur automatically by changing the payment frequency.

START FREE TRIAL

“Track income and expenses, screen tenants, set automatic reminders, and more with Landlord Studio.”

* 30 day free trial. No card required.

Are HOA Fees Tax Deductible?

You may have to pay HOA fees (homeowner association fees). Whether these fees are tax deductible depends on whether or not you live in that property. 

  • If you live in your property year-round, then the HOA fees are not deductible as they are considered by the IRS as an assessment by a private entity as opposed to a business expense.
  • If the property is a rental property HOA fees do become tax deductible. In this scenario, the IRS sees these fees as property maintenance costs. You need to report HOA fees on your Schedule E (form 1040) when you submit your tax return.
  • If you live in your property part of the year then it becomes a little more complicated. But in a simplified sense, you can deduct HOA fees for the portion of the time that it is rented. For example, you rent it out for 9 months of the year – then you can deduct 75% of the HOA fees.

What is the IRS form Schedule e?

IRS form 1040 Schedule E is the form that you need to use to report income and loss for a rental real estate, royalties, partnerships and a couple more classifications.

Report your income and expenses using this form split up by property and itemized as shown in the below screenshot.

Landlord Studio has these categories already preloaded for you and easily allows you to generate property specific reports.

Download the Schedule E Form
schedule e form

How Much can you Deduct as a Landlord?

According to the IRS, if you actively participated in the management of your rental property, you may be able to deduct up to $25,000  against your income each year.

However, let’s say your property brings in $20,000 but you spend $50,000 on it that year. You’d record a loss of $30,000 which is more than the allowed limit of $25,000. 

In this scenario you deduct the $25,000 from your current tax year and then carry over and “recapture” the remaining $5,000 in the following year. If you continue to have lossesof more than $25,000 then you can continue to carry over the the losses beyond that amount year after year.

For more detailed information read the IRS Publication 925: Passive Activity and At-Risk Rules 

Conclusion

Running a rental can be expensive. There are many miscellaneous costs and expenses which can quickly add up and become unmanageable. At times it can seem like making a property cash-flow positive might never happen.

Which is why it’s so important to make sure that you keep immaculate records of your income and expenses and claim back everything that you are allowed to. These tax deductions are designed to help business owners.

Laws on what is an acceptable expense varies from state to state so it’s important you check with your local state laws to ensure you remain compliant.

Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article is for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a competent professional.

Income and ExpensesLandlordLandlord AppProperty ManagementSoftwareTax Deductible Expenses

Ben Luxon
Ben Luxon

"Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

×

Start your free 30 day trial of Landlord Studio

I'm a  

Error

Error

Start Free Trial