Top 10 Tax Deductions Often Overlooked by Rental Property Owners

11 Dec Top 10 Tax Deductions Often Overlooked by Rental Property Owners

Rental real estate provides more tax benefits than almost any other investment, but only when property owners take advantage of all the tax deductions available to them.  While most owners know that their mortgage interest and real estate taxes are deductible, some of the other deductible expenses we’ve highlighted below might surprise you.  Read on to discover what we believe are the top ten most overlooked tax deductions for rental property owners.

Depreciation

Depreciation is a rental property owner’s single most valuable deduction because it is an “on paper” deduction – one that didn’t require cash out of your pocket.  It represents the wear and tear of the property annually as if it were an expense and is based on the purchase price of your property.  The amount you can depreciate is equal to the purchase price, minus an amount allocated to land, plus closing costs such as abstract fees, recording fees, surveys, transfer taxes, owner’s title insurance, and legal fees.  For residential property, the amount of the deduction is the purchase price of the property spread evenly over 27.5 years.  This ratable deduction is also allowed on improvements you make to your property, such as new flooring, roof, windows, and kitchen or bathroom remodels.  And the relatively new 100% “bonus” depreciation incentive allows you to deduct the entire cost of items such as furnishings, appliances, and landscaping in the year you purchase them!

Loan Costs

Costs that are incurred in connection with obtaining a loan to purchase your rental property cannot be deducted, but they can be amortized over the life of the loan.  Such expenses can be found on the closing documents you receive when you purchase the property, and include such items as underwriting and processing fees, cost of credit reports, and appraisal fees charged by your lender.   And if you later sell or refinance the property, the remaining unamortized balance of these costs can be deducted in that year.

Property Insurance

Insurance on your rental property is almost always required by your lender (and even if it’s not, it’s a good idea to have it!).  The annual premium on this policy is a deductible expense that many owners forget about, simply because it is often paid directly by the lender via your escrow account, rather than from your checkbook.

HOA Dues

Rental properties are often located in communities that are governed by a Homeowner (or similar) Association.  While the HOA’s existence can be quite beneficial in ensuring that the community is a safe, clean, and comfortable place for families to live, their required fees can be rather substantial.   Because these dues are a necessary expense associated with your rental property, they are deductible against your rental income.

Routine Maintenance Costs

All properties require some level of routine maintenance in order to remain safe and comfortable for those living inside.  Pest control, servicing of the furnace and air conditioning units, and flushing of the sewage/water lines are all good examples, and their associated cost is a deductible expense.  Less frequent maintenance expenses such as painting and window repair are also deductible maintenance expenses.

Yard/Outdoor Maintenance

Your rental property most certainly will require some form of outdoor maintenance from time to time, whether it be mowing the grass, cleaning the gutters, trimming shrubs and trees or any manner of other upkeep.  If you, as the property owner, are responsible for payment of these expenses, rest assured that they are deductible against your rental income.  Be sure to keep detailed records of these expenses such as receipts, cancelled checks, and credit card statements, since often it’s tempting to pay cash for these services, which doesn’t leave an easy trail to follow.

Cleaning Expenses

Cleaning, cleaning, and more cleaning!  Owning a property that you rent to others can involve a plethora of cleaning chores.  Whether it’s a deep cleaning in between tenants or power-washing the decking, sidewalks, or driveways, any cost associated with cleaning your rental property is a deductible expense.   Remember to keep all your receipts, including for the rental of any equipment you need in order to get the job done well!

Property Management Fees

Owners who do not have the time to actively manage and maintain their rental properties on a day-to-day basis may partner with a property management company.  These groups have the time and resources available to handle all manner of issues with regard to rental properties, from finding and keeping tenants, to handling repairs, to tracking your rental income and expenses.  Although their services are invaluable to the property owner, they can add up, so it’s nice to know they are fully deductible against your rental income.

Mileage and Travel Expenses

Business use of your car and overnight travel for your rental property is deductible, provided you keep detailed records regarding the business purpose of the expense.  Trips to your property to show it to a prospective tenant, tackle a repair, or deal with a tenant complaint are all good examples of deductible travel.  If you use your car, you can deduct a portion of the actual expenses such as gas, maintenance, and repairs, or you can use the standard mileage rate.  If your trip entails airfare, lodging, or other travel-related expenses, these are deductible for the portion of your trip that is business-related.  If any portion of the travel is for pleasure, you must prorate the expenses and only deduct those that are related to your rental property.

Utilities (if not paid by tenant)

Any utilities such as electricity, gas, water, sewer, or trash that are paid by the rental property owner rather than the tenant are deductible.  Communication services such as internet and cable/satellite TV for your rental can also be deducted.  Keep in mind that if your tenant later reimburses you for any of these expenses, you will be required to include them in income.  But to the extent that you are required to pay them, you can deduct them against your rental income.

To contact Burdick & Associates, P.C., call (303) 813-1380 or visit their website at http://www.bmacpa.com/

Kellie Burdick, JD, CPA

Ms. Burdick is a Certified Public Accountant, licensed attorney, and shareholder at Burdick & Associates, P.C., an accounting firm located in Greenwood Village, CO. She received her Bachelor of Arts degree, Cum Laude with Honors, from Loyola University Maryland in 2002, where she received the Presidential Scholarship and was a member of the Honors Program, Dean’s List, and Sigma Tau Delta Honor Society. She obtained her Juris Doctor degree in 2005 from the University of Denver, where she was awarded the Sam and Freda Davis Scholarship and the DU Law Scholarship. Ms. Burdick is licensed to practice law in Colorado and Utah. She holds a CPA certificate from the State of Colorado and is a member of the AICPA and the Colorado Society of Certified Public Accountants. Kellie serves as the treasurer on the Board of Directors of Family Star, which serves children and families across the economic spectrum in a respectful and empowering community. Kellie worked for B&A from 1997 to 2005, and she again joined our staff in 2011. Ms. Burdick has experience in taxation, auditing, and accounting in industries such as oil and gas, real estate, closely held companies, and personal service companies.

Colorado CPA License #31936
Burdick & Associates, P.C.