A landlord operating a rental property is operating a business, and can benefit from several tax deductions allowed by the Internal Revenue Service (IRS) to lower his prices and tax basis at the income-producing property. The principles applying to those deductions and their limitations can be complex, and might require the counsel of a tax professional.
Loan Interest
Interest charged on mortgages and loans financing improvement jobs are tax-deductible. Landlords can also pay attention to credit cards in case the funds are used to purchase products and services related to the rental property’s operations.
Depreciation
Landlords can recoup some or all their acquisition and advancement cost . According to the IRS, depreciating income-producing property is dependent on three factors: the basis, or purchase price, of the property; the recovery length of the property (the number of years over which the landlord could claim depreciation); along with the depreciation method used. Depreciation can simply be traded on the section of the property used for business purposes; land is not included in calculations. Improvements are depreciated beginning on the date. All developments and additions must use the Modified Accelerated Cost Recovery System (MACRS) depreciation method; the leasing property itself is depreciated with the General Depreciation System (GDS) or the Alternative Depreciation System (ADS). These depreciation methods can get complex; the IRS provides information on depreciation at irs.gov, but landlords might find it even more helpful to hire a tax pro for additional counsel.
Repairs
The complete, fair and necessary expense of repairs is fully tax-deductible in the year that the repairs were created. Examples of deductible repair costs include repainting, replacing broken windows and flooring repairs.
Travel
Travel associated with the operation of the rental property is totally tax-deductible. Examples include train tickets, airfare, hotel and food. If the landlord uses his personal vehicle, he could either deduct gas, maintenance and appropriate automobile repair expenses or use the standard mileage rate (55 cents per mile driven as of 2009, according to the IRS).
Home Office
According to the IRS, a landlord can deduct costs related to a home office provided that the landlord uses this component of the house exclusively as a principal area of business. This area of the house must be used as a main meeting place for customers and customers or haven functions directly related to the operations of a business detached from the landlord’s home.
Wages
Employee and independent builder wages are operating expenses and therefore are tax-deductible.
Casualty or Theft Losses
Casualty losses are those caused by a sudden event like a fire or a flood. In cases like this, the landlord might have the ability to deduct some or all losses from taxable income. However, the whole cost of land destroyed due to a casualty event is generally not tax deductible. The deductible amount is set by how much of the property has been destroyed and what is covered by insurance. By way of example, suppose a 1.0 million land was burnt to the ground and insurance covers 80% of the damages. In cases like this, the landlord might have the ability to deduct $200,000 from taxable income.
Rental Losses
Landlords can deduct up to $25,000 of lost rental income. To qualify, the landlord should own at least 10% of the property and has to be actively participating by being the main management decision maker at the key operations of the leasing business. Limited partners of rental properties are not eligible for the $25,000 rental income loss deduction.
Insurance
Insurance premiums are tax-deductible. Including insurance for fire, flood and theft. Employee health and worker’s compensation insurance premiums will also be tax-deductible.
Legal and Professional Service Fees
Fees paid to specialist consultants, such as lawyers and accountants, for services rendered in relation with the rental property are part of operating expenses and therefore are tax-deductible.