15 Potential Tax Deductions for Landlords During Tax Season

However, fewer landlords are aware of the range of tax breaks available to property owners and managers—landlord tax deductions that could help you save big. What can landlords deduct from taxes?

Below, you’ll find 15 potential landlord tax deductions that could help you during tax season. While some of these tax breaks apply to all homeowners, many are unique to rental properties. Make sure to check with your tax professional or CPA to determine whether any specific landlord tax deduction applies to you.

1.Long Distance Travel

If you have to travel long distances to check on your property, legal site NOLO reports you may be able to deduct the cost of your travel expenses. Examples of deductible expenses include things like:

• Car mileage
• Airfare
• Hotels
• Other trip costs

2.Mortgage Interest

If you didn’t purchase your rental property outright, you probably have a mortgage. If you do, you’re paying interest to a bank. According to SmartAsset, landlords can deduct their mortgage interest as a rental expense.

This well-known rental property tax deduction applies to all homeowners. Still, it’s especially important for landlords to use because it’s usually the biggest deduction you can claim.

3.Personal Property Taxes

According to NOLO, you may be required by your local government to pay personal property taxes on equipment and furniture used for business purposes. Most landlords are aware that they can depreciate their personal property, but did you know that you can depreciate personal items used in your rental business at a faster rate?

All Property Management explains that with the Modified Accelerated Cost Recovery System (MACRS), you may save more money by fully depreciating personal property inside the rental unit over a shorter period.

For example:

• Appliances, carpeting, and furniture can be depreciated over a five-year period.
• Other items, like fences and driveways can be depreciated at a 15-year rate.

You can check to see which asset class your property falls into on the IRS website, and research additional IRS landlord tax deductions you may be eligible for.

4.Repairs

Generally, the IRS splits changes to your property into

1. Improvements to the property (which increase the value) or
2. Returning things to their original condition (repairs/maintenance)

The Balance Money notes that while improvements must be capitalized and deductions taken as depreciation over time, repairs and maintenance costs can be expensed in a single year.

Repairs vs. Improvements — Use the “BAR” Test

So, how do you know if what you’re doing is classified as a repair or an improvement? You can use the BAR acronym.

According to the IRS, an improvement “results in a betterment to your property, restores your property, or adapts your property to a new or different use.” Here is how they classify each term:

• B — Betterment. Does the change fix a defect in the property that existed before you bought it? Does it physically enlarge or enhance the property in any way?
• A — Adaptation. Are you going to use the property in a new or different way than you originally intended when you purchased it?
• R — Restoration. Does the change rebuild the property to a like-new condition? Have you already taken a loss for the damage?

If you can answer yes to the above questions or your repair falls into any of these categories, it could likely be considered an improvement by the IRS, which needs to be depreciated.

5.Local Travel

Many landlords like to routinely check in on their tenants and property. You might also need to handle maintenance, repairs, or improvements on-site. According to NOLO, if you use your personal vehicle to make the trip, you may be able to deduct the cost of travel using one of two different methods:

1. Actual expenses or
2. IRS standard mileage rate.

However, legal site Justia says there’s a caveat if you’re using the IRS standard method. In order to qualify, you must use this method during the first year that the vehicle was used in business activity. The actual expense method allows you to deduct the real-world vehicle expenses, as well as depreciation.

You may consider calculating your deduction with both methods to see which benefits you most.

6.Legal Fees for an Eviction

Are eviction expenses tax deductible for landlords? Often a landlord's worst nightmare, evictions can be extremely stressful and take a huge financial toll on small rental businesses. Thankfully, according to money site SmartAsset, you may usually deduct court fees and attorney costs.

However, even if some of those expenses can be deducted, such a financial hit could decimate your profits.Eviction-related expenses can cost between $1,000 and more than $5,000 depending on a number of factors, according to SmartAsset. How would your business fair with such hefty fees?

In addition to monetary cost, there’s also the intense worry of an ongoing legal battle and the pressure of not knowing what could come next. While it’s good to save money through claiming potential landlord tax deductions, it’s better to help prevent evictions in the first place by running different types of background checks on tenants before they're allowed to move in.

Bolster your tenant screening process by including:

• Criminal background checks
• Credit reports, including an exclusive ResidentScore®
• Eviction history report
• Identity check

Getting an in-depth look at a rental applicant’s background and history can help you make more informed, timely leasing decisions.

7.Home Office

According to rental financial tracking site Rentastic, if you use a dedicated space in your home to conduct rental business, it may be a deductible expense––even if it’s not a whole room you may be eligible for the landlord home office tax deduction However, the article also explains there are certain criteria your home office must meet in order to deduct the expense, including:

1. Your space must be used exclusively for your trade or business
2. It must be used for this purpose regularly

For instance, your office shouldn’t also be a home gym and your work computer shouldn’t be used to play games or for other personal reasons.

How to Calculate a Home Office Deduction

To calculate the landlord home office tax deduction, the IRS provides there are two ways you can calculate the deduction for the business portion of your house––the “standard” method and the “simplified” method.

• Standard Method: The IRS explains you can calculate your space’s square footage divided by the square footage of your entire house. If all the rooms in your house are roughly the same size, divide the number of rooms your business space encompasses by the total number of rooms in the house.
• Simplified Method: Multiply the allowable square footage used for your home office by a specific IRS rate. As of writing, the prescribed rate is $5 per square foot with a maximum of 300 square feet, according to the IRS.

12.Capital Expenses

NOLO offers some helpful information for understanding how landlords can deduct long-term assets. In terms of tax rules, the article explains there are two different types of expenses that are incurred as a rental property business: current and capital.

1. Capital expenses are defined as purchases that are expected to last more than one year and generate revenue in the future. This might include equipment, land, or vehicles, but keep in mind these are not the only capital expenses. Such purchases are treated as investments by the IRS and must be deducted (or capitalized) over a number of years.
2. Current expenses are the day-to-day operational expenses that keep your business running, such as rent and utilities. You can deduct 100% of current expenses from your gross rental income in the year they are incurred.

13.Professional Services

SmartAsset also explains that, in addition to the legal services mentioned above, other professional assistance can be deducted, as well. For example, you may be able to deduct:

• Attorney fees
• Real estate agent fees
• Advertising costs
• Property management fees

According to Steward Ingram & Cooper PLLC, small business owners like landlords can typically deduct expenses for services like attorneys and accountants, as long as the reason you are hiring them is related to the rental business.

Since IRS regulations are regularly updated or changed, hiring an accountant to file your taxes may keep you from overlooking deductions available to you.

If you do decide to handle your taxes yourself, the same landlord tax deduction may be applicable if you use tax preparation software, according to SmartAsset.

14.Operating Expenses

What operating expenses can landlords deduct from taxes? According to Marinaccio Law, many items that you purchase for your rental property throughout the year can be classified as operating expenses and deducted in the year during which you purchase them.

The IRS website defines these expenses as “the ordinary and necessary expenses for managing, conserving and maintaining your rental property.” The IRS tips explain appropriate expenses that are generally accepted as necessary for a rental business might include:

• Advertising
• Maintenance
• Utilities
• Insurance

15.Maintenance and Upkeep

Finally, according to TurboTax, the money spent on ongoing maintenance upkeep and property management is usually tax deductible for landlords. You might be tempted to put some of this ongoing maintenance in the repairs category, but the ongoing upkeep of your property doesn’t necessitate something being broken.

The article shares what costs are tax deductible for landlords. Examples of these upkeep costs include:

• Pest control
• Equipment rentals and purchases
• Trash removal
• Yard maintenance
• Cleaning

The Marinaccio Law article also states you can also generally deduct tools needed for cleaning or upkeep, such as a lawnmower or chemicals. In some cases, it may be necessary to depreciate these tools, so check with a tax professional if you have any doubts.

Help Lower Costs with Strategic Deductions and SmartMove Tenant Background Checks

As a landlord, the complex rules of rental property tax deduction can often work in your favor. However, all your hard work at tax time is meaningless if you sacrifice your profits to debilitating eviction proceedings. Help even the odds with fast, online tenant background checks through SmartMove.

While working with finances, details always matter. One of the most important tenant screening tasks a landlord may complete is ensuring applicants make enough income to afford the rent.

• Income Insights compares your rental applicant’s self-reported income to actual financial data to see if it matches or if additional documentation is recommended.
• A tenant credit check can help you review your rental applicant’s financial history.
• Included in every SmartMove screening package, a proprietary ResidentScore helps predict potential eviction risks.

On top of financial details, you can also read more about a rental applicant’s history to help determine if they could be a potential threat to your property business.

A criminal background report scours millions of crime records searching for a potential match to your applicant, while a previous eviction check may help you potentially spot worrying patterns. Finally, identity verification can help you confirm your tenant is actually who they say they are.

Having detailed data from a reputable source like TransUnion can also help you build confidence in your leasing decisions without all the waiting around.

In the game of rental property management, don’t let yourself get blocked into a corner. Increase your chance of success with fast, flexible online tenant screening through SmartMove.