Being an owner of a property is everyone's dream, but on the other hand that comes with paying taxes to the government. The good thing is the United States tax code has rules and regulations that allow property owners to save their money and also reduce the taxes they pay.


This article is mainly aimed at promoting and empowering local citizens to own properties to achieve the ‘American Dream' we all want to attain. Luckily, in this article, we are going to have an in-depth analysis and discussion about top rental property tax deductions for 2018.


What is regarded as an expense when income to rental properties?


In this subject, there are only two types of expense


  1. Current expense
  2. Capital expense


Current expense 


They are mainly one-off things that help keep your property in top condition and liveable on the other hand it also helps in the operation of the property as a rental business. The total amount of the expense is deducted from your taxes as long it is the same year that it was incurred.


For it to be considered as a current expense it must be:


  • Ordinary and necessary 

An ordinary expense is those that are common and accepted in business while necessary expenses are those that are considered appropriate and they include insurance, utilities, maintenance, taxes, advertising, and interest.

  • Current  

To be regarded as current it must have more short-term value than long-term value.

  • Direct relation to your rental activity

The expense must be business related 

  • Fair and reasonable amount

For all property owners, they must learn an important lesson


Capital expenses


Capital expense refers to all those things that increase the value of the property or prolongs its lifespan. This must be profited from and depreciated over the years


Top tax deductions for landlords   


When claiming for rental property tax deductions worksheet, it's always advisable to ensure that you have a complete and thorough record, this will make tracking your expenses much easier and simple. The IRS always do a full scrutiny of all these expenses, if you don’t have all the receipts to account for all your expenses you will pay the amount owed plus interest.


Mortgage Interest


One of the main loans on rental properties is mortgages and its interest is the largest deductible expense. At the time of purchase of the property, if you paid for buy-down points, you are allowed to deduct it also. Other deductibles are:


  • Interest on the mortgage can be either primary or secondary 
  • HELOC Interest on loans that were used in improving and repairing the property
  • Interest accrued on credit cards when purchasing items and tools used in the property
  • Mortgage Points used in refinancing and acquiring the rental property


NOTE: The law only allows the deduction interest on cash used in the rental business


Rental Property Depreciation 


Depreciation is the hypothetical wearing and tearing of the property and treating it as an expense. The law allows you to take advantage of the accounting principles of the resulting cost through depreciation even though you might not feel the financial burden.


Normally there are only three types that you should take advantage of and depreciate:


  • The structural value of the property 
  • Improvement value
  • Equipment’s


It's important to note that all these deductions are not made during a single year, but instead they are spread out over a number of years. This is meant to prevent people from taking advantage of the tax liability system.


Taxes 


Taxes on real estate are usually paid through a mortgage company and it comes up on Form 1098 sent from the bank. When the property is free and clear of a mortgage, you will have tax records online in case you don’t have the receipts. Other tax wages deductibles are:


  • City, county and state taxes 
  • Permit fees 
  • Unemployment and medical taxes 
  • Personal property tax


Repair 


Catering for repairs and improvements is regarded as the effort put into maintaining and caring for the property. They include:


  • Plumbing repairs 
  • Fixture repairs
  • Labor cost
  • Painting


Maintenance 


People often confuse maintenance as the cost of repairs, maintenance does not entail fixing anything. They are considered normal expenses when operating the property, the examples are pool cleaning, home owner’s association fees, pest control etc.


Rental Property Insurance


All insurance premiums that are related to business are tax deductible, and they are usually 15-20% more than the owner's policy. The premiums vary depending on the properties size, cost, and location. The most common types of insurance taken for rental properties are:


  • Fire and hazard insurance
  • Liability insurance
  • Sewerage back up insurance
  • Theft Insurance
  • General Liability Insurance
  • Mortgage Insurance Premiums


Utilities


All the cost incurred when paying for the property utilities are factored in when calculating tax deductions for rental property. The law allows claims for these utility expenses even if the tenant reimburses you at a later date on the condition you claim it as income.


Most common utilities are:


  • Electricity 
  • Gas
  • Heating bills
  • Water and sewer
  • Internet and telephone services


Travel expenses 


The cost incurred when traveling to visit your properties or assets and conduct business are considered as a business expense and are subject to tax deduction. They are:


  • Airline Fares 
  • Cab fare or car rentals
  • Hotels expenses 
  • 50% of the total meal expenses 


Vehicles 


Using your car when conducting businesses of the rental properties are tax-deductible. There are two options either deducting the actual expense or utilizing the normal 56.5 cents per mile rate while driving.  


Management fees


Property owners may require outside help when it comes to managing their properties. When you hire a manager, the law allows you to deduct it as an expense. There are:


  • Individual Property Managers
  • On-site Manager
  • Property Management Firms
  • Property Association Fees


Legal and professional fees


When you need to hire a professional whether it’s a lawyer, tax expert or account the cost incurred are deducted. Especially during evictions or when problems arise with tenants. Mostly they are:


  • Advice on accounting matters 
  • Legal Fees
  • Consultation with engineers
  • Court Filing Fees
  • Reviewing leases


Supplies 


All landlords require a working space and some of them rent commercial spaces, this particular expense is extensively scrutinized by the IRS to minimize fraud. Always keep records of the time spent in the office and deduct the personal expense incurred. Most common office expenses are:


  • Phone Bills 
  • Rent
  • Stationery
  • Ink & Printer materials 


Advertising and commissions


Marketing is the most common tactic employed to advertise the rental properties to potential tenants. Commissions to real estate agents or managers when they rent out your property, those two expenses are tax deductible as operating expenses. They range from:


  • Banners 
  • Print and electronic media 
  • Phonebook ads
  • Tenant Referrals commissions 


Conclusion


Filling your taxes can sometimes be a hard and strenuous thing to do. The post above will help you to account fully for all your expense with proper records and receipts in order to avoid additional expenses and fines from the tax man. We all want a stable livelihood and there is no better way of achieving that than being a property owner.


However, this comes at a cost and we must pay special attention to all the laws and regulations about rental taxes in order to enjoy tax benefits of the rental property. Happy filing.  

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