Rental property tax deductions can be the difference between profit and loss with your investment. If you own a rental property, the IRS allows you to deduct expenses you pay for the care and maintenance of the property. This applies to both traditional and Airbnb rental properties.
Rental properties typically offer larger deductions and more tax benefits than most investments. A tax deduction is usually an expense that is acquired to help you generate more income. This helps you decrease your tax liability. Several of these are disregarded by investors as they come to file their taxes resulting in higher expenditure over the year. Here are the top ten rental property tax deductions for every investor should know about:
1. Interest – Interest is often the largest rental property tax deductible expense. Common examples of interest that investors can withhold include mortgage interest payments or services used to maintain the property.
2. Depreciation – Depreciation refers to the value of property that’s lost over time due to typical wear and tear. The actual cost of an investment property is not fully deductible in the year in which you pay for it. Instead, you may get back the cost of real estate through depreciation. In the case of improvements to a rental property, you can deduct the loss of value every year. You will have to stop depreciating once you recover your cost or you stop renting out the property.
3. Repairs – The cost of repairs to rental property are fully deductible in the year in which they are acquired. Some examples of rental property tax deductible repairs include repainting, fixing gutters or the roof, fixing leaks, and replacing broken windows. The IRS allows you to deduct repairs that allow the property to be functional, not improvements. The costs of improvements that add value to a rental property can be depreciated years instead.
4. Travel – This rental property tax deduction is one that investors overlook when caring for their rental properties. Landlords are eligible for a tax deduction whenever they drive or fly to visit their rental property. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. For example, when you drive to your rental building to meet with a tenant, deal with a complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses. You have two options for deducting your vehicle expenses. You can deduct actual expenses such as gas and oil changes or the standard mileage rate which is set by the IRS. If you travel overnight for your rental property investment, you can deduct your airfare, hotel bills, meals, and other expenses. If you are doing business from home, you can even deduct office supplies. Any space in your house that is used as workplace for your rental property investment business is deductible!
Related: 6 Better Ways To Spend Rental Income
5. Employees – Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This accounts for your employees such as resident managers, or any independent contracts, such as those hired for repairs. Landlords can deduct wages and salaries for employees, such as for residential managers and staff grounds maintenance workers. Other tax-deductible services that can be used as deductions are independent contractors, such as carpenters, electricians, plumbers, gardeners, etc.
6. Rental Property Supplies – Tax deductions are plentiful when it comes to household purchases. For instance, cleaning expenses can range from hiring a professional cleaning service to buying toilet bowl cleaner, furniture polish, and vacuum. All of these day to day cleaning expenses that incur to keep your property clean for guests are deductible. Furniture is another great tax deduction, especially if you purchased furniture for your purposes of Airbnb. You can get a rental property tax deduction on items such as beds, desks, lamps, and other household items. Lastly, food is deductible if you provide it with your Airbnb listing.
7. Homeowner Association/Condo Dues – This is often the most overlooked rental property tax deduction but it can save you money during tax season. Homeowner Association fees are considered another expense to maintain livability of the investment property, which means it can be considered another major rental property tax deduction!
8. Casualties, Loss, and Theft – If your rental property is damaged or destroyed from a sudden event like a fire or tornado, you can obtain a rental property tax deduction for your loss. These deductions are referred to as called casualty losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty; however, any little bit helps in these circumstances.
9. Insurance – You can deduct the premiums you pay for almost any insurance associated with your rental property. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can even deduct the cost of their health and workers’ compensation insurance!
10. Legal Fees – You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
Keep in mind that an investment property that is rented more than fourteen days in a year requires you to pay taxes on the rental income. Keep track of your expenditures in order to properly file your rental property tax deductions. The IRS treats Airbnb like any other independent contractor income, therefore, like any investment, taxes are a priority. Airbnb may help hosts by collecting and sending the taxes on your behalf, however, this benefit is only available in a handful of cities. Be sure to double check their accounting at the end of the year though! Happy money saving!