By Super User on Friday, 20 April 2018
Category: Owners

Tax Deductions for Landlords: Operating Expenses

For most landlords, being able to deduct operating expenses can make a big difference on the amount of tax that they owe.

But when it comes to fully utilizing those deductions, that’s where many landlords struggle. After all, there are so many different expenses that you can claim! Additionally, the IRS doesn’t have an exhaustive list of all the eligible expenses, just that they must meet their requirements to qualify as deductible. This means that they must be ordinary and necessary, current, directly related to your rental activity, and reasonable in amount.

Here’s a look at what you should know about operating expenses, and how you can claim them on your taxes.

Deductions: Current Vs. Capital

Deductions fall into one of two different categories: current and capital.

Let’s look at both now.

Operating Expenses: What Are They?

Now that we’ve got that out of the way, let’s take a look at some of the deductions that you may be eligible for. Make sure you’re not forgetting anything this year!

Some valuable deductions that landlords can claim include:

Learn more about available deductions for landlords here.

 

Business Vs. Personal Use

 If you purchase something or subscribe to a service that you use for both business and personal use, you can deduct only the portion that you use for business-related purposes. To determine this, you’ll need to pinpoint how much time you use your item for rental-related purposes, and how much for personal use. Then, divide the cost between the two purposes and deduct the rental-related portion. So, say for example that you use your internet connection for official business purposes 60 percent of the time. In this case, you can only deduct 60 percent of the cost of service.

Special Rules for Certain Expenses

The IRS has created specific rules for certain operating expenses, that spell out which expenses are deductible, how much is able to be deducted, and in some cases, even stipulate specific record-keeping requirements.

Here’s a look at the main areas that include special rules and requirements.

For more information on these deductions, and the rules surrounding them, visit the IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses.

Get Organized

Okay –so you have a lot of deductions that you can work with now. Your best option when it comes to claiming them is to be diligent with your record-keeping. This means keeping track of all of your receipts, invoices, and bills as expenses arise. Likewise, be sure to use a separate checking account for your expenses, and try to obtain documentation for every transaction that occurs.

So there you have it! As a landlord, there are a lot of deductions that you’re most likely eligible for.

Since taxes can easily eat into a significant portion of your rental income (up to 50 percent according to some estimates!) experienced investors know that taking advantage of the available deductions is key to maximizing their profits. Don’t miss out! Make this year the year that you save.

And don’t forget, if you’re stuck, it’s always a good idea to work with an experienced CPA –ideally someone who’s experienced in preparing taxes for landlords. A good accountant will be able to inform you of tax deductions that you may be eligible for and can keep you from making many common pitfalls that landlords often make when filing, helping you to save when tax time rolls around.

Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.

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