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The Top 8 Tax Deductions For Rental Property Owners

One of the most advantageous things about investing in rental properties is the deductions you can take at tax time. That’s why meticulous record-keeping is so important throughout the year. If you’re going to claim a deduction, make sure you can provide documentation that this is a real expense. I always tell investors to treat receipts and invoices like they’re cash, because at tax time all of those pieces of paper or electronic files can save you a lot of money. Here are eight of the most common deductions for rental property owners.   

Home Office

If you have a dedicated home office where you conduct business related to your rental properties, you can deduct this expense in one of two ways. You can divide the square footage of the space you use as your office into the total square footage of your home. Or you could divide the number of rooms that you use for your home office – this will typically be 1 – into the number of rooms in your house. Use whichever percentage is larger to multiply it by your home expenses. Even if you’re running your rental property business out of an apartment that you rent, you’re still able to take this deduction.

  • Interest

For rental property owners, interest can be one of the largest deductions. You can deduct any interest mortgage payments or any interest on credit cards that are used to pay for rental property expenses.

  • Depreciation

As rental property owners, you can deduct the depreciation on your rental property. How this works is that the entire value of the property itself – but not the land where it’s situated – can be deducted over the course of 27.5 years, or about 3.64 percent per year.Additions and improvements to a property can also be depreciated, but they must be done separately from the depreciation deduction of the original building.

  • Personal Property

What are some items that you’ve used for your rental property? This can include furniture or appliances in your rental units, or even gardening equipment that you used for upkeep. You can deduct the full value of these items up to $2,000.

  • Travel

If you have a vehicle that you use to drive to and from your rental property, you can either deduct the vehicle expenses – gasoline, upkeep, and repairs – or use the standard mileage deduction. If your rental property is far away, you can even deduct your airfare and hotel stay when you visit your property. One distinction that property owners need to be mindful of is that travel expenses related to improving the property are not tax deductible, while all travel related to repairs and routine business are still tax deductible.

  • Employees and Independent Contractors

Whether someone is a full-time employee or an independent contractor, in both instances you can deduct their wages as a business expense.

  • Insurance

You are able to deduct the insurance premiums that you pay, including your liability insurance as well as fire, flood, or theft insurance. If you have health insurance in place for your employees, you can also deduct that.

  • Legal and Professional Services

This can be a pretty big deduction. Any fees that you pay your attorneys, accountants, property management companies, or other consultants can be deducted as long as they are fees related to your rental property.

So there you have it. It’s always best to hire an accountant who will be able to maximize your deductions. You should also consider hiring a bookkeeper who will be able to provide you and your accountant with clear records of your income and expenses.

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Ken McElroy has lived and breathed real estate for his entire adult life, learning from the ground up. He shares his insights and experiences on his podcast, “Real Estate Strategies with Ken McElroy,” and on his wildly popular YouTube channel. Ken is passionate about educating others so that they too can experience financial freedom through real estate investing.
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