5 Big Rental Property Tax Deductions – NerdWallet

Owning a lease property can generate some extra income, but it can besides generate some great tax deductions. here are five big ones that tax pros say should be on your radar if you ’ re thinking about buying a rental property.

1. Mortgage interest

“ mortgage interest is tax-deductible for your rental property because it ‘s a business expense, ” says Thomas Castelli, a certify public accountant at The real Estate CPA tauten in Raleigh, North Carolina. erstwhile in January or early February, you should receive a imprint 1098 from your mortgage lender showing the interest you paid for the year. When you file your tax return, in most cases you take the deduction on IRS Schedule E, which is for residential rental property owners.

2. Depreciation

many people think of their homes as investments that become more valuable over clock time, but think of a rental property as more of a business asset, similar to a desk or a forklift. many clientele assets depreciate — that is, they become worth less and less every class until they reach the end of their utilitarian lives. For rental properties, that ’ s typically ( but not constantly ) 27.5 years. If you own a rental, you can credibly deduct that disparagement each year on your tax retort. The mathematics international relations and security network ’ t precisely dim-witted, though. There are unlike ways to calculate the depreciation on a rental property, which is why it ’ s a good idea to get help from a qualify tax pro if you ’ re a landlord. There are besides particular rules for co-ops and condominiums. normally you can start depreciating a rental property when it ’ s ready and available to rent.

3. Property taxes

property tax is a tax on real estate ( and sometimes early property you own ). The sum of tax is largely based on where the property is and how much the property is worth. You can normally deduct the property taxes on a rental property — you good have to remember to do it, Castelli says. rental owners frequently overlook the tax write-off, he notes. Although there ’ s a newfangled terminus ad quem on the property tax subtraction ( $ 10,000, or $ 5,000 if married filing individually, for property taxes and either department of state and local income taxes or sales taxes combined ) — that specify doesn ’ metric ton apply to business activities.

Learn more ways to capitalize on your home

4. Repairs

generally speaking, the price of things such a fix busted garbage disposals, swapping out lighter bulbs or patching holes in the wall is normally tax-deductible in the year you incur the expense. sometimes the cost international relations and security network ’ triiodothyronine deductible. rather, it gets capitalized and could become contribution of your basis ( typically what you paid for the theater ). For exemplar, if you buy a $ 300,000 rental and spend $ 25,000 adding a one-fourth bedroom, you may not get to deduct the $ 25,000 that class. That ’ randomness because in the eyes of the IRS, it ’ sulfur nowadays as if you paid $ 325,000 for the house alternatively of $ 300,000. That could mean a bigger depreciation write-off. People misclassify rectify costs on their tax returns all the time, Castelli says. Often, they mistakenly deduct capital improvements, which could be a red flag for the IRS, he warns. “ If they see that you have very high repairs and sustenance on your tax returns but you have a humble property, possibly some of those should actually be capitalized, ” he says. here are a few big examples of things the IRS says normally have to be capitalized. You can see more in IRS Publication 527 .

  • Additions
  • Landscaping and sprinkler systems
  • storm windows
  • New roof
  • security systems
  • Heating and A/C systems
  • Water heaters
  • Flooring
  • insulation

5. Other expenses

These things might besides be deductible :

  • fare expenses associated with collecting rent, managing your lease or maintaining it .
  • Advertising your rental
  • indemnity on your rental
  • Utilities

In general, you can ’ t withhold these things :

  • travel between your base and the rental property ( the IRS considers that commuting unless your dwelling is your chief target of occupation ) .
  • Uncollected rent ( but this depends on the account method acting you ’ re using for your rental income ) .
  • Lost income because your rental was vacant .

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Should I buy a rental property just for the tax deductions?

probably not. It ’ south crucial to make sure you ’ re actually bringing in more cash than you ’ rhenium outgo each year, warns Robert Mulcahy, vice president of specialization lending at Angel Oak Prime Bridge in Atlanta. “ What happens if that tenant decides to move out ? What happens if the tenant loses their problem ? The disparagement benefit there is going to be significantly lost when you are now carrying an extra expense that is actually not making you any money, ” he says .

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