10 Tax Deductions you can Claim as a Landlord

1. What Tax Deductions can I Claim as a Landlord?

According to the IRS, you can claim tax deductions for all of your rental property expenses as long as they meet two criteria: they are ordinary (i.e. you’re not the only landlord claiming that type of expense), and they are necessary (i.e. you can’t reasonably run a rental business without the expense).

While a stone lion statue for the front garden is unlikely to be considered ordinary or necessary, most of your expenses will meet the criteria and can be deducted using Schedule E. These are the most common tax deductions you can claim as a landlord:

• Interest on mortgage payments and other loans: The IRS allows you to deduct the interest portion of loans you’ve taken out for your rental properties, as well as any fees (including origination fees). Note that you can only deduct interest in the year it’s applied to the mortgage, which is not necessarily the year it was paid. Your mortgage lender(s) should send you a Form 1098 detailing your interest payments. You can also deduct interest from other loans, including interest paid on credit cards, as long as the money you borrowed was used for your rental property.

• Taxes: Any property taxes you’ve paid in the year on your rental properties can be deducted. You can also deduct any fees you paid for tax advice and preparation. Note that income taxes can’t be deducted, and sales tax should be included with their applicable expenses and not deducted separately. If you’re filing as an individual, the combined tax deduction for you and your spouse is limited to $10,000.

• Advertising: If you have a vacancy, you can deduct the cost of advertising the property. Remember to keep your advertising expenses separate from the other costs of turnover like cleaning and repairs, which should be reported on a separate line.

• Maintenance, repairs & cleaning: According to the US Census Bureau’s 2019 American Housing Survey, the average homeowner spends $931 per year on routine maintenance activities. You can deduct all of your routine maintenance, like painting and general repairs, on your Schedule E, as well as HOA fees and fees paid to a property management company. Note that you can’t deduct improvements (like replacing a furnace) as they’re considered a capital expense.

• Utilities: If you pay for the cost of utilities, like electricity, natural gas, and water for your rental properties, including during periods of vacancy, you can deduct those expenses.

• Insurance: Having proper rental property insurance is vitally important to ensure you and your property are protected while it’s being rented out. You can deduct the entire cost of insurance from your rental income on your taxes.

• Depreciation: Depreciation refers to your rental property’s natural loss in value over time. It can be calculated using Form 4562 and deducted on your Schedule E. The IRS doesn’t require you to submit documents proving depreciation, but you do need to keep them as part of your permanent records in case of an audit. Make sure your rental property bookkeeping is in tip top shape.

• Travel: If you travel to and from your rental properties for business, you can deduct your travel expenses. If you travel by car, you can deduct your actual expenses (only for the miles driven for business) or a flat rate of 56¢ per mile. You can also deduct 50% of your meal expenses if you’re traveling away from home, so be sure to keep your receipts.

• Office and related expenses: You can deduct the cost of any office and related expenses you use for your rental business. That includes the space as well as supplies and things like utilities, phone and internet. If you have a home office, you can deduct it using the home office deduction. Note that certain office equipment, like computers, are considered capital expenses and should be depreciated rather than deducted.

• Professional fees: You can deduct the cost of tax advice and preparation on your Schedule E. You can also deduct commissions paid to a real estate agent or other service providers for helping you find a tenant.

Legal and real estate expenses pertaining to your property, however, can’t be directly deducted. Real estate commissions, closing costs, title insurance, notary fees, and other legal fees are considered capital expenses and rolled into your depreciation amount.