As a new year approaches, it can only mean one thing (besides a sudden spike in gym memberships); we’re that much closer to tax season. And whether you’re dreading it or looking forward to it (hello, tax returns!), you want to try to keep as much money in your pocket as possible this year.
On the plus side, it’s nice to know that landlords have plenty of tax deductions to take advantage of. Some deductions are fairly straightforward, and others much more complex, but they’re generally worth the effort you put in to qualify for them, especially if money is flowing out the door in other ways. Here are eleven deductions to consider in 2024:
1. Professional Service Fees
If you paid any fees to lawyers, tax accountants, real estate investment advisors, or other similar professionals for your rental properties—you’re in luck. These services are tax deductible. If you hired a property management company, consulted with a lawyer about a tenant, or met with an accountant in 2023, don’t forget to include this deduction.
Related: Rental Property Tax Deductions for Landlords to Keep in Mind in 2022
2. Property Taxes
Even with the rise in mortgage rates in the last few years, the housing market has continued to soar. With rising home values, it’s only a matter of time before local home appraisers set your property’s value higher, which can be a good thing if you plan to write off your property taxes.
It’s important to note that according to the Tax Cuts and Jobs Act of 2017, the amount of state and local taxes you can deduct is limited to $10,000 for single filers and married couples filing jointly and $5,000 for married couples filing separately. So, if you paid more than that in 2023, you won’t be able to deduct the entire amount.
3. Interest
If you paid interest on loans used to fund your rental property, the interest is deductible. While you might already be familiar with mortgage interest deductions, another type of deductible interest that is not commonly known is credit card interest. You can deduct any interest you paid on credit cards used to purchase business services, materials, and supplies.
Related: 2022 Tax Filing Season: IRS Backlog, Form 4868, Letter 6419 and More
4. Insurance
If you paid insurance premiums for insurance coverage on your rental properties, including liability, mortgage, property, hurricane, fire, theft, or flood insurance, be sure to write these off so you can save more on your taxes. And if you have employees in your rental business, you can deduct their health insurance or worker’s compensation insurance.
5. Depreciation
As a landlord, you can claim depreciation on the cost of your rental property, which can help reduce taxable income in the short term. Some items—like the majority of the cost of purchasing your rental property or capital improvements—must be depreciated over 27.5 years instead of deducted. But there are some things you can depreciate at a faster rate, like new appliances in a rental unit (five years), office furniture and equipment (seven years), and fences (15 years). Be sure to talk to your tax accountant about these items since depreciation can be nuanced.
Related: Tax Season 2022: IRS Backlog, Electronic Submissions, Direct Deposit and More
6. Utilities
Are you paying for electricity, water, gas, or other utilities for your tenants? You can deduct these costs. This deduction will be offset, however, if you pass these costs on to your tenant.
7. Repairs and Maintenance
The costs associated with repairing or maintaining your rental property can be tax-deductible so long as the expenses are related to the rental property and not capital expenditures.
This can get tricky, as sometimes it’s hard to know if work on your property falls into the repair and maintenance category or the capital improvements category. A general rule of thumb is that if something you do restores your property to its original condition, it is a repair. (Upgraded the tile in your bathroom for aesthetics? Deductible, but not considered a repair or maintenance expense.) Regularly servicing and maintaining your property is also important to prevent things from becoming a problem. So be sure to deduct maintenance costs that regularly recur, like tree pruning, gutter cleaning, landscaping, HVAC maintenance, etc.
8. Capital Improvement
Beyond repairing and maintaining your property, you may also make a change to your rental property that significantly improves or extends the useful life of your property. This is considered a capital improvement. Other examples include renovations, completing the basement, bathroom makeovers, kitchen updates, and installations (new roof, HVAC system, etc).
9. Home Office
While the Tax Cuts and Jobs Act of 2017 made it so work-at-home employees can no longer deduct out-of-pocket expenses, self-employed business owners can still claim the home office tax deduction for qualifying costs.
If you are a self-employed landlord and have a dedicated space in your home that you use only for your rental business, you can deduct an equal percentage of the space from your housing costs. With a dedicated home office, you may also be able to deduct local transportation expenses (auto mileage) to and from rental properties. If you do not have a home office, a trip from your home to your rental would be a non-deductable personal expense.
10. Travel
As mentioned above, mileage spent traveling to and from your rental properties can be deducted if you have a dedicated home office, so be sure to document how many miles you drive and what each trip was for (e.g., showing the property to prospective renters, meeting a contractor, picking up needed supplies). You can also deduct long-distance travel, but you need to be able to prove the travel is mainly for business purposes.
11. Meals
If you are traveling to a property you already own and get some food on the way, you can deduct 50% of the cost of that meal. It might seem tedious to keep documentation on every purchase, but you can easily store your expenses in TenantCloud’s tracking tool. It’s important to keep detailed documentation of your deductions in case you are audited down the road.
As always, consult a tax professional before taking these deductions to be sure you understand their nuances. A professional can help you figure out if you qualify for a deduction, or they can help you build a defensible case for taking certain deductions. Nobody wants to be audited by the IRS. If you are, though, be sure you are prepared.
More Deductions To Consider
Many rental property owners are utilizing a tax break, known as a 1031 Exchange. A 1031 exchange allows you to swap a real estate investment property for another like-kind property to defer capital gains taxes, often called “trading up.”
While you’ll need to pay taxes at some point down the road, except in cases of inheritance, this allows you to use the entire proceeds of a sale to purchase a new property right away. You can thereby increase the size of your portfolio at a faster pace than would otherwise be possible if you were paying capital gains taxes upon each sale.
It’s important to note that 1031 exchanges have a strict timeline that must be followed and generally require the assistance of a qualified intermediary (QI).
File Taxes with Confidence
From organizing receipts to downloading tax reports, TenantCloud makes it easy for you to be ready for tax season at the touch of a button. Try TenantCloud today.
