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Tax time is a regular part of owning rental properties, and staying organized is key. It’s important to keep track of what money you spend on your property because the IRS lets landlords lower their taxable income with these expenses. Keeping good records and knowing what expenses count is key. For the latest details, IRS Publication 527 is a great resource.
Property Management and Taxes
At Lease Retriever, we focus on keeping detailed financial records for our private clients. We provide our private clients a complete set of Year-End Income Statements. Included in these statements are all repairs and additional costs we’ve managed for the property. By breaking down these expenses, we make dealing with taxes easier. Whether you’ve been renting out property for years or are just starting, we’re here to help you get the most out of your tax deductions.
Common Tax Deductions for Landlords
- Mortgage Interest: Often the biggest deduction. If you have a mortgage on the property, the interest you pay is deductible.
- Property Taxes: You can deduct the property taxes you pay for your rental properties. Make sure to follow California-specific guidelines.
- Repairs and Maintenance: Costs for fixing and keeping your property in good condition are deductible. However, improvements that increase the property’s value are considered capital expenses and must be depreciated.
- Operating Expenses: Day-to-day expenses like utilities, insurance, property management fees, and advertising can be deducted.
- Depreciation: You can deduct the cost of the property structure (not the land) over time, reflecting its wear and tear.
Security Deposit Accounting
Security deposits are not considered rental income when you collect them, assuming you might return them to the tenant at the end of the lease. However, if you keep part or all of the security deposit because the tenant breaks the lease early or damages the property, then the amount you keep should be included in your income for that year. If a security deposit is used as the last month’s rent, it’s considered advance rent and included in your income when received. This approach ensures you’re only taxed on the security deposit if it becomes income under these specific conditions.
Tax Deductible Expenses
Advertising
Costs for marketing your rental.
Cleaning and Maintenance
Keeping the property in good condition.
Consultants
Fees for real estate or investment advisors.
Depreciation
For the property and improvements over time.
Educational Materials
To improve management skills.
Eviction Expenses
Legal costs for removing a tenant.
Appliance Depreciation
Appliance depreciation can be taken on items that are owned by the landlord and provided for the tenant’s use.
HOA Fees
For properties in a homeowners association.
Independent Contractors
Payments to maintenance workers, gardeners, etc.
Insurance
Property and liability insurance costs.
Interest
On mortgages and loans related to the property.
Key Services
Costs for lock changes and keys.
Legal Fees
For property-related legal advice.
Licensing/Registration
Fees for legal operation.
Mortgage Interest and Insurance
Payment on mortgage interest and insurance.
Office Supplies
For managing the rental property.
Property Management Company
Fees paid for property management services.
Property Taxes
Taxes paid to the local government.
Repairs
Costs for property repairs.
Safety Inspections:
Ensuring property meets safety codes.
Screening Fees
For checking potential tenant backgrounds.
Transportation Expenses
For property visits and management tasks.
Utilities
For vacant rentals only, when the owner pays.
Vacancy Losses
Lost income from unoccupied units.
Smart Record Keeping for Your Rental
Keeping good records is like making a map for tax time. You write down the money you make from rent and what you spend on things like repairs and taxes. This helps you see how your rental is doing and makes tax time easier. Plus, if the IRS asks questions, you’re ready with answers. A property manager can help by giving you a report at the end of the year with all of this information.
Would you be interested in a free mini-audit of your rental property’s income?
