One of the many benefits of owning a rental property is that you can take tax deductions when you rent out your home.
For example, if you are moving and decide to rent out your current home instead of selling it, you can write off quite a few expenses. In fact, the list of deductible expenses is longer than you might think, so you will definitely want to keep track of all receipts for purchases made in regards to the property.
To help you put these rental property tax deductions into perspective, we'll go through the major categories for you to keep track of.
Costs to Put the Property in Rental Service
If your home is empty and you are waiting for renters, you can deduct quite a few expenses.
Any advertising costs you spend, even if those costs are paid to a property management firm, are deductible.
You can deduct the cleaning and maintenance costs during this time, which is great news if you would like to hire these services out instead of handling them on your own.
If you are cleaning up from one tenant to the next, you may have a few additional costs. Trash removal, painting and carpet cleaning may all fall into the category of prepping the rental home for the next tenant. Yard maintenance during the time it is vacant can also be deducted.
Costs to Manage the Investment Property
Renting out your home means that several costs associated with owning the property are considered tax deductions: the taxes and insurance you pay on the home; if you have a mortgage, the interest you pay on it.
If the home is in a neighborhood with a homeowners association, or if it is a condo with condo fees, those costs are considered tax deductions for rental properties as well the management costs associated with working with a property management company.
Costs to Maintain the Home You Rent Out
Property maintenance costs can add up. This is where you can accumulate deductions quickly. Consider costs such as:
- Rental of equipment
- Materials for repairs
- Pest control
- Utilities you choose to pay or pay while your rental home is vacant
Keep track of anything you spend on your property, as it is likely deductible.
Considerations with Home Improvements
Improvements to the home are deductible, but they usually have to be capitalized and depreciated over several years instead of deducted the same year you paid them, as you can do with repairs.
So what is an improvement compared to a repair?
- Improvements add to the home's value or prolong its life. For instance, if you install a water filtration system or spend money modernizing the kitchen or adding insulation, these would be improvements.
- Repairs, such as painting, replacing broken windows or doors, fixing leaks or repairing a broken appliance, are all deductible in the year you perform them.
Travel Expense Deductions
One deduction many landlords forget about is travel to and from their rental investment property. Even if you live in the same community, you can write off your mileage when you travel to your rental home to collect rent, perform inspections, do repairs and any other activity that requires your attention.
Keep detailed records of your mileage and the activities performed while you are there to document that your activities relate to your responsibilities as a landlord, and you can write off these expenses.
As you can see, the deductions for your rental property are quite varied.
By keeping careful records and paying attention to your activities relating to your rental property, you can turn it into a valuable tax deduction.For specific guidance on tax deductions relating to rental property, consult the Internal Revenue Service website.
Are you renting out your home? How are you tracking what you can deduct on your taxes relating to your investment?