Among the many benefits of owning an investment rental property are the tax breaks that owners can claim each year. Some years, these tax benefits might be the only profit an owner will see. This is why it is so important that you are filing your taxes correctly and taking advantage of every tax benefit available. Here are a few tips that can help:
Owning an investment rental property requires some maintenance each year. It’s important to keep track of maintenance expenses, as many of them are tax deductible. Some of the most common tax-deductible expenses for maintaining a rental home include the following:
- Mortgage Interest
- Insurance Premiums
- Accounting Fees
- Legal Fees
- Cleaning and Maintenance
- Commissions Paid to Leasing Agents
- Any Costs Related to Procuring a Mortgage
- Travel Expenses
Improvements vs. Repairs
One area that can be confusing for rental property owners is knowing the difference between a property improvement and a repair. Repairs can be written off, improvements take longer to recoup. If you find that your home needs specific small repairs, such as a cracked window or repairs to the flooring, you can add those expenses to your tax deductions for the current year. With home improvements, such as upgrading the flooring, only part of the expense can be claimed in the current year. The rest will be recouped as the property depreciates over several years.
Net Loss Claim
In some situations, the repair, maintenance and operating costs of a rental property exceed the amount of rent the owner is able to collect in a year. When this happens, it is considered a rental loss. A rental loss can also be claimed even when the amount of rent is higher than maintenance expenses because owners are allowed to deduct or depreciate a portion of the rental property.
When a rental loss occurs, you may be entitled to additional tax deductions. There are some hoops to jump through to prove this to the IRS, but it may be worth looking into if you took a significant hit on rent in a particular year.
There Are Limits
As you become more familiar with the IRS policies regarding rental properties, you’ll begin to discover many of the tax benefits for property owners. However, it is important to know and understand the limits. Travel expenses are a good example. You can deduct expenses incurred while traveling to your rental property to collect rent or to perform maintenance, but if you choose to travel outside of your local area, you cannot write off the entire expense.
RPM East Valley has been working with investment property owners throughout the Phoenix area for many years and continues to offer excellent service. If you need help with keeping your rental property leased with the best possible tenants, call us and let’s discuss what we can do for you.