Tax Time – A Few Tax Considerations for Landlords

Tax deductions for landlords

The deadline for taxes is just a one week away and if you are new to managing rental properties, there are a few things to consider when filing this year.

Please keep in mind, I am not a tax professional and everyone’s situation is unique.  I would recommend working with a licensed tax professional when it comes time to file, but these tips should help in your preparation and planning.

An investment property is an asset and has taxable consequences.  

If you are self managing your rental property, it would be wise to treat the management of the property as a business operation.  One of the first steps in doing that is recognizing what a business expense is and planning for those expenses accordingly.  

Directly from the IRS website, a business expense can be defined as:  

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

Some of the most basic expenses that a landlord will incur are:

  • Utility Expenses – Gas, electricity, water, trash removal etc.
  • HOA Expenses
  • Property Taxes
  • Depreciation
  • Insurance
  • Repairs

There are also other expenses to consider which you may want to consider before filing:

  • Snow Removal
  • Landscaping Maintenance & Expenses
  • Internet Connectivity/WiFI
  • Pool Maintenance & Expenses

Vehicle expenses can also be considered if you are driving to and from the property.  This includes mileage or even vehicle depreciation. 

Many investors will even consider writing off the costs to advertise the property prior to vacancy and the costs to clean the property when the tenant vacates.

A knowledgeable CPA will have insight as to what is eligible for a deduction and is taxable. The important thing for a landlord to remember is that this venture should be run like a business and with that, everything should be accounted for when it comes to income and expenses.  

Consider utilizing online software to help with the bookkeeping efforts and be sure to save all of your receipts.  You may even want to create receipts with software tools to account for rent that has been paid by your tenants.   

Think long term as well.  You should work with a CPA who you know and trust so that you can work with him/her to discuss your short term and long term strategy for the property as your tax implications can vary depending on how long you hold the asset.  

Consulting a tax professional is the probably the most important step to ensure you are taking advantage of the tax benefits that come along with investing in real estate. However, the planning and preparation that you put into this during the course of the year is what will help ensure that everything is accounted for and organized.  Your CPA will thank you for this but it is also in your best interest to have your finger on the pulse.