Rental Properties Offer Owners Tax Advantages

Basic tax advantages landlords receive from their investment in real estate properties are similar to those of every homeowner. These basic tax advantages are the ability to deduct property tax expenses and mortgage interest costs from your federal tax return. Beyond these deductions, as a landlord you have the advantage of many more tax incentives. If you provide utility services such as water, heat and/or electricity at no cost to tenants, tax laws allow you to deduct these costs from the income on the property. Furthermore, all operating expenses for your rental property are tax deductible. This would include maintenance and repair costs such as the expense of repainting the property or replacing windows, gutters and floors. Fees for liability, property and rent loss insurance are also tax deductible.

Thanks to depreciation deductions, landlords are offered tax advantages by the IRS for improving their rental properties. Improvements include installation of a security system, a swimming pool, new furnace or air conditioner, any new appliances or upgrades to the kitchen. Or perhaps you want to add on another room or a porch to the rental home. These also would be considered an improvement, not an operating expense. These expenses may not be written off as operating expenses, they are written off as depreciation of improvement deductions.

Depreciation Tax Advantages are Available Even Without Improvements

Tax advantages offered by a depreciation deduction may seem confusing at first, but should prove worth your time to understand. Depreciation costs are those accumulated by the normal wear and tear of every residential property including rented buildings. Thankfully, the IRS acknowledges the fact that a building depreciates considerably over time and so permits landlords to deduct some of the cost of depreciation every year for up to 27.5 years. Much of these costs do not even require you to spend anything to get back money on your tax return. You simply have to file the cost of depreciation. The only time you will spend money for a depreciation deduction is when you make improvements to the property.

Accounting Fees are Tax Deductible

Most landlords will probably find the assistance of an accountant to be highly valuable at tax time. An accountant specializing in rental property taxes can help you take advantage of all the deductions offered to landlords. If the expense of hiring an accountant is of concern, hopefully you will find relief in knowing their fees are tax deductible. Similarly, the wages of employees hired to help keep books, care for tenants and make repairs are deductable operating expenses.

Careful Record Keeping is Necessary to Receive Full Tax Advantages

While an accountant can be very valuable at tax time, they won't be able to do much without records of your spending and income. Therefore, whether you choose to do your own taxes or use an accountant, always keep receipts for absolutely everything! And, if you want your tax filing process to go most smoothly, keep your receipts organized in one place. What should you keep receipts for? You'll want receipts for office supplies such as desk organizers and notebooks. Keep receipts for the cost of your property advertisements posted in the local newspaper. And do not forget to save receipts for gas and car upkeep if you have several rental properties that you are traveling between.