Work as a landlord comprises many duties such as maintaining the property, staying on top of mortgage payments, searching for new tenants, and managing repairs.
However, did you know that these everyday tasks may qualify for deductions? Here are the top 19 tax deductions you might be eligible for as a landlord.
What Qualifies As an Expense?
There are two main categories of expenses that businesses can seek deductions: operating expenses and non-operating expenses.
Operating expenses relate to a company’s primary activities, such as administrative fees, cost of goods sold, and rent.
Non-operating expenses are those not directly related to a company’s primary operations, like interest.
A third category that qualifies as an expense is capital expenses. These expenses are those that a company uses to maintain, own, or upgrade its assets. Some common assets that are capital expenses include buildings, equipment, and property.
Current expenses are another form of expenses. However, current expenses are only short-term, meaning you’ll use what you purchase in under one year.
Examples of current expenses are:
- Computer paper and computer toner
- Office supplies
- Vehicle expenses, such as fuel
Capital expenses are fixed assets, those that a company will hold onto for more than a year. Current expenses also include major expenses.
Also known as capital expenditures, these expenses include:
- Equipment, including machinery and manufacturing
Top Landlord Tax Deductions
Deductible business expenses must meet two requirements. These expenses must be ordinary and a necessary expense:
- Ordinary expenses are commonly accepted and used by general industry standards and are needed to run your business.
- Necessary expenses are appropriate and helpful in running your business or trade.
As a landlord, you can deduct travel expenses. These expenses may be from either local travel or long-distance travel, as long as it is related to business.
Expenses that are local but involve commuting from home to your work location aren’t deductible.
2. Mortgage Interest/Loan Interest
You can deduct loan interest and mortgage interest on your business-related expenses:
- Interest on car loan payments, but only for the part used for business purposes
- Interest paid on credit cards used only for business purposes
- Interest paid on mortgage payments or other business loans
3. Depreciation of Assets
As a landlord, you may already know that depreciation of your assets will happen over time, and there are different methods of depreciation:
- Straight-line depreciation reports equal amounts of depreciation for the entire useful life of an asset.
- The declining balance method depreciates an asset at its straight-line percentage times its remaining depreciable amount annually.
- The double-declining balance (DDB) method of depreciation takes the useful life of an asset, doubles it, and applies the rate to its book value and depreciable base,
- The same rate applies to the asset’s entire useful life.
- The sum-of-the-year’s digits (SYD) method combines all of the digits of an asset’s expected life.
How to Calculate Depreciation
If you want to calculate depreciation, you’ll determine:
- The asset’s useful life from the asset’s salvage value at the end of its useful life
- You’ll divide the above amount by the cost of the asset, which includes the costs of obtaining the asset
4. Real Estate Taxes
You can deduct the amount paid on certain real estate taxes:
- Delinquent taxes (If you agree to pay delinquent taxes when you buy a home, you can’t deduct them)
- Escrow accounts (You can only deduct the real estate taxes the lender paid from escrow to the taxing authority)
- Rebate or refund of real estate taxes
- Taxes paid at closing or settlement
5. Homeowner Association Fees
As a landlord, you may be surprised to know that homeowner association fees are deductible in some cases.
You can deduct payments for items your dues or fees were for that you paid for instead.
6. Personal Property Taxes
Personal property taxes are another deductible expense. The IRS has a few requirements for this type of deduction:
- The personal property tax must be charged to you yearly.
- This applies even if the tax is collected more than once a year or less than once a year.
- There’s a limit of $10,000 total (or $5,000 if married and filing separately).
- The limits are for the total of deductible local and state income, property, and sales tax
Repairs are another deduction you can make. The IRS considers repairs to be fixes that don’t add value to your property.
It is essential for repairs not to increase the value of your property. If this is the case, the IRS considers the repair to be an improvement. Improvements aren’t tax-deductible.
8. Eviction Fees
You can deduct fees associated with evicting a tenant, but how you do so may differ on the accounting method you use. If you use the cash accounting method, you can deduct eviction costs for:
- Cleanup or repairs
- Legal costs
- Using a collection agency
Landlords using the accrual method of accounting can write off uncollected debts as bad debt. This will allow you to reduce the amount of taxable income.
9. Office or Home Office
You may seek a deduction for your home office or office use, but with some conditions. You’ll need to use either your home office or office for most of your business duties.
The amount you’ll deduct for home office or office use will vary based on the percentage of square footage your home office or office occupies.
10. Wages for Workers
You may also deduct wages for your workers as business expenses. This applies even if you have full-time employees, part-time employees, or contractors used to make repairs.
11. Capital Expenses
Capital expenses are deductible, but how it is deductible differs from other tax deduction options. This expense is treated as an investment instead of an expense.
You’ll deduct the costs of capital expenses the year following the purchase, resulting in the deduction lasting a few years instead of in one tax year.
You can deduct premium costs for different insurance types, including:
You can also deduct health insurance costs for your employees as well.
13. Professional Services
You can deduct the costs associated with paying for professional services. The fees for the following are deductible:
- Accountant fees
- Attorney fees
- Fees you pay to other professional advisors
- Real estate agent fees
Maintenance within your property (in the form of repairs) is fully tax-deductible. Repairs must not add any value to the existing property in a tax year. Examples of repairs are:
- Repairing a clogged sewer line
- Repairing a cracked window
- Repairing a hole in a wall
- Repairing a leaking dishwasher
- Replaced cracked floor tile
- Repairing hardwood floor
- Snaking a clogged sewer line
You can also deduct advertising costs. Due to how extensive advertising expenses can be, you’ll need to know that only ordinary and reasonable expenses are deductible.
Examples of deductible advertising expenses include:
- Ads (in phone books, online, or on TV)
- Business cards (the cost of printing them)
- Business website costs
- Promotional activities
- Radio advertisements (which includes production costs)
As a landlord, your expenses are deductible for local vehicle travel. You can select from either the standard mileage rate or actual expenses.
As of January 1, 2021, the standard mileage rate is 56 cents per mile.
To determine your deduction using actual expenses, you’ll calculate the number of miles driven for business purposes out of the total miles driven. Then, you’ll include the costs of:
- Depreciation (or lease payments)
- Registration fees
You may also deduct these expenses:
- Applicable license fees, license taxes, and registration
- Interest on a car loan
- Parking fees or tolls (for both actual expenses and standard mileage rate)
17. Management Fees
Management fees are also deductible. You can deduct these fees as a miscellaneous itemized deduction, similar to tax preparation fees. Management fees must be more than 2% of your adjusted gross income to be deductible.
You may also deduct commissions paid to employees as a tax deduction. However, there are scenarios in which you can’t deduct commissions in the same tax year. For landlords, this includes:
- Bonuses, commissions, or fees to get a lease on business property
- Commissions for getting a mortgage on a business building
19. Start-up Expenses
Finally, as a landlord, you’re eligible to deduct startup expenses. You can deduct two categories, each with a $5,000 limit: organizational costs and startup costs.
- You can deduct up to $5,000 in startup costs during your first business year, but the deduction will decrease if you have over $50,000 in startup costs.
- If applicable, you can also deduct up to $5,000 in organizational costs before the end of the first tax year your company operates.