Taxation for Real Estate Investors: Tax Deductions for Landlords
October 14, 2017
Real estate investing as a landlord is a great way to make a lot of money over time. Your taxes relating the investment, however, can be burdensome so you'll want to learn about as many deductions as you possibly can to reduce your tax burden.
Here are five tax deductions for landlords that you may not know about:
Mortgage, Other Loans, and Credit Card Interest
Despite popular opinion, not everyone who invests in real estate pays cash. Many real estate investors take out mortgages on their rental properties and yes, you can deduct the interest you pay on that loan and still deduct the interest you're paying on your primary residence mortgage. Also, if you take out an additional loan to improve the property, you can deduct the interest on that loan. And while you can't deduct the closing costs to take out the mortgage you can deduct any points you paid to lower the interest rate. Are you paying off a credit card that you used to pay for goods and services related to your rental property? That interest is deductible. What about a personal loan you took out to pay for things related to your investment property? You can deduct that interest too. Given that interest payments will likely be your biggest expense on an investment property you don't want to pass the opportunity up to take those deductions.
Insurance premiums that relate to a business are tax deductible, and this applies to your rental properties. There are different types of insurance you could pay for that relate to your rental properties including homeowners insurance, flood insurance, worker's compensation insurance, and personal umbrella insurance. If you're paying for specific types of insurance only because you're a landlord (and wouldn't otherwise), those premiums should be tax deductible.
Whether you own rental property out of state or an hour's drive from your primary residence, you can deduct expenses that you pay to travel to that rental property and back. Even if you just take the bus across town to visit your rental property, you can deduct the fare you paid on the bus. According to the IRS in order to take the deduction collecting rent, managing, or maintaining your rental property must be the primary purpose for making the trip. Note that if the primary purpose is to improve your rental property you can't deduct in that year, it's factored into depreciation.
Trade For Services
Sometimes you may get a tenant who is willing to provide a valuable service related to your rental property in exchange for a rent deduction. For instance, your tenant owns a window replacement business and replaces all the windows in the property for a $3,000 reduction in rent. That $3,000 is considered income. However, you can deduct the expense as rental related.
Legal, Management, and Tax Preparation Fees
Good news - the fees you pay your tax advisor to prepare your taxes and/or your bookkeeping are deductible. If you pay a lawyer to review and prepare your lease that's deductible as well. And if you experience the unfortunate circumstance of having to evict a tenant the fees you pay to the court are deductible. Of course, if you pay a property management service to oversee the property for you then you can deduct those as well.
Make sure you keep your receipts and paperwork. It's often not so much the actual deduction that gets you in trouble but the lack of paperwork to back it up that does.
Don't pay more on your taxes than you absolutely have to! We can show you how to optimize your deductions and keep more money in your pocket. If you would like to learn more about tax deductions for landlords, please don't hesitate to contact us today.