- Travel Expenses
- Property-Related Rental Tax Deductions
- Other Possible Rental Property Tax Deductions
- Teifke Real Estate: The Full-Stack Investment and Property Management Team
Death and taxes. They say these are the only two guaranteed things in life. And they’re not wrong.
And yet, there are also a number of beneficial rental property tax deductions that can also save you money and help you keep more of your earned investment.
Disclaimer: We’re not tax professionals. You should always consult your accountant or a qualified financial advisor before counting on any or all of these tax deductions.
That said, we’ve been at this game for decades and operate dozens of rental property investments, both as part of Teifke Real Estate as well as personally. We’re sharing with you some of the gold nuggets we’ve learned over the years of successful passive income generation and managing our own rental property tax deductions.
If your rental property Investments require long-distance travel for you to manage them, your travel expenses are often deductible. This could include car miles, rental cars, plane tickets, and hotel costs.
If your properties are local, travel expenses may still be covered. If you’re routinely checking each property, handling maintenance, heading to the hardware store, and using your personal vehicle to do so, these expenses could be deducted.
Financial Expense Deductions
These are all the little things that add up over time. Be sure to take advantage of whatever rental property tax deductions apply to you.
Mortgage Interest Fees
If there’s a mortgage on your rental property investment, you’re paying interest on the loan every month. this interest can be deducted as a rental expense on your taxes. While this also applies to every homeowner, it’s even more valuable for real estate investors and usually amounts to the largest deduction available.
Insurance for real estate investors is often significantly more costly than standard residential homeowners insurance. A portion of your insurance premium may be deductible.
Capital expenses are larger purchases and assets that could potentially contribute to future income generation. This could include equipment, computer software, machinery, additional properties, and vehicles. This would not include expenses related to raw materials or inventory.
Property-Related Rental Tax Deductions
Repairs and Maintenance
Any projects that are required in order to maintain the safety and functionality of the home are considered repair and maintenance. This is not to be confused with property improvements for aesthetic purposes.
Repair and maintenance expenses would include painting, drywall repair, reducing the ventilation system, replacing the air conditioner, updating the windows, home cleaning, new carpet, repairing neglected landscaping, replacing the siding, roofing, and more. Keep all the receipts for any contractors or equipment rentals for later documentation.
BONUS Deduction: Energy Efficiency
You may also find specific tax deductions for improvements related to increasing energy efficiency.
Fire or Natural Disaster Losses
Some circumstances simply can’t be predicted. In the worst-case scenario, if a property is severely damaged or even completely lost due to an actual disaster or fire, you can claim this on your tax return. However, it’s worth noting that this number must be in alignment with what’s covered by your insurance carrier.
Every year, you can calculate your property’s depreciation value and count this as a tax deduction. In addition to helping you preserve funds, this is also a required deduction by the IRS.
Keep in mind the potential for a recapture tax if the property is sold for more than its calculated depreciated value.
Remember the bit about death and taxes? Here it is again. Even your investment properties are subject to property taxes. However, these are considered an expense and can be deducted from your total taxable income.
Utilities You Cover
As the property owner, you have the option of covering all or some of the utilities on behalf of your property rather than expecting the tenant to do so. This is considered an operating expense that can be deducted from your tax expenses.
It also allows you to charge more for rent and ensure that everything is always paid on time, and avoid the risk of utilities getting shut off.
Property Management Fees
If you work with a property management company to manage the property on your behalf, their monthly fees are another tax deduction. If you manage the property yourself, any fees associated with management expenses, such as paying for background checks and advertising, are also tax deductible.
A pesky necessary expense, HOAs ensure your property’s long-term value and keep the neighborhood desirable. The good news is that HOA membership dues are tax deductible.
Legal Eviction Fees
Eviction is one of the least desirable elements of rental property ownership. While they’re the exception rather than the rule, they do still occur. And they can be expensive. There may be fees for legal counsel and court fees associated with an eviction, both of which qualify as tax deductions.
Marketing and Advertising Expenses
Advertising and promoting your vacancies is a necessary expense to fill your rental properties with qualified tenants. As such, they’re considered a necessary operating expense and can be deducted from your total taxable income.
Home Office or Office Space Expenses
Whether you work from a home office or wherever you are on the road, this tax deduction benefit could cover a portion of a myriad of expenses. Internet, cell phone plans, rent, office utilities, and even a portion of your primary residence home insurance are all possible deductions.
Employee and Contractor Wages
A successful and scalable rental property investor is one with a team. And this team comes with expenses, including wages, social security, health insurance, and other benefits. Whether they’re W-2 employees or contractors, these expenses are tax deductible.
Paying for professional services and consultants can be a tax-deductible expense. This includes attorney fees, accountants, tax advisors, and other professional services.
Subscriptions and Software Tools
In our digital age, if it can be done at all, it can be done better with software or automated with the right tools. But these tools come with a price tag. Rental property tax deductions could cover some are all of these expenses, including cloud storage, social media tools, project management apps, trade publications, and many of the day-to-day tools you use to operate the business.
Other Possible Rental Property Tax Deductions
Tax Deductions For Using Personal Items
If you use any personal equipment or tools for business purposes, you may be required to pay property taxes based on the value of your property. The IRS website outlines at what rate personal property can be depreciated. For example, appliances and furniture are depreciated over a five-year timeline, while exterior assets like driveways and fencing depreciate over a 15-year timeline.
Teifke Real Estate: The Full-Stack Investment and Property Management Team
Owning and operating a rental property is one of the most effective strategies for generating passive income. It’s even more profitable when you stay informed on the rental property tax deductions available to you.
Frequently Asked Questions About Rental Property Tax Deductions and Rental Property Investment
Below are some of the most frequently asked questions about rental property tax deductions
Of course, not every expense is tax-deductible. Anything related to cosmetic property improvement would not be a tax-deductible expense as this is technically optional.
In most cases, yes. If your property is simply vacant and waiting for a new tenant, that qualifies for a tax deduction. However, if you’re donating the space rent-free to friends or relatives, the expenses would not qualify.
Assume the IRS can find out anything. There are tax audits, paperwork, public records, utility bills, and informants are among just a few of their readily available channels of information about your investments. Ethical business practices are the best way to ensure you never end up on the wrong side of the IRS.
If you sell a rental property for more than its depreciated value, the property would be subject to a depreciation recapture tax. The good news is when you work with an experienced and reliable tax advisor, there may be several channels to pursue deferring or eliminating this tax. Consult your tax professional to learn more about your options if you’re selling a rental property.
 IRS.gov (2022) How to Depreciate Property: Internal Revenue Service. Publication 946 (2022). Internal Revenue Service. (n.d.). Retrieved from https://www.irs.gov/publications/p946 25 May 2023