Landlord Tax Rules And The Most Standard Deductions

As a homeowner, it's imperative to know and understand the taxes you can deduct from your taxes because they will help you reduce your taxable income and reduce your tax burden. Taking advantage of all available tax deductions can help you maximize your revenue. Here are some of the most standard deductions.

Ordinary and necessary expenses

Only expenses considered as reasonable and appropriate in the sector of activity can be deducted:

• Everyday expenses: they are "common and accepted" in your industry. For example, an ordinary cost for a homeowner may be to pay a contractor to repair a roof leak.
• Necessary expenses: they are "useful and appropriate" for your business, for example, an essential expense for an owner may be the hiring of a rental property manager to simplify the management of the property.

Keep detailed records

If you want to ask something about your taxes, you can provide proof if they are verified. You must keep complete and accurate records of all income and expenses related to the rental property.

Your deductions could be different

The following are standard tax deductions. It does not apply to all owners, tenants, or real estate investors.

For instance, some of these deductions do not apply to people who rent homes or apartments that are considered their residence. The property is deemed to be a residence if you use it for your personal use for more than "X" days of the year or "X"% of the days the property was rented at fair market value. (These numbers will appear in Appendix E of the current year, or you can consult your accountant.)

You should consult your tax advisor or IRS to determine the proper way to file the appropriate taxes and deductions for your situation.

Here are twelve things that homeowners can deduct from their taxes.

Depreciation

For an item to be considered depreciable, it must follow three rules:

• Expected to last more than one year.
• Be of value to your business in some ways.
• It wears over time or loses its value.

Here are some examples of depreciable assets:

• The investment cost of the property (minus the land value)
• Real estate improvements, such as new kitchen cabinets or a new roof
• Shrubs or fences
• Furniture or appliances
• Commercial machines

The amortization of an asset differs depending on the asset. Different assets, such as a building or refrigerator, will have a different useful life and will have to use different types of depreciation, such as accelerated depreciation or straight-line depreciation. Check with the IRS or your accountant to determine the kind of repayment to use and the useful life of any asset you are trying to delete.

Loss of passive activity

Owning a rental property is considered a passive activity. Complex rules apply to passive assets, but in a nutshell, this limits your ability to claim losses incurred in passive activities relative to other types of income.

There are some exceptions:

• Real estate professionals: if you are considered a real estate professional (some rules apply, such as working at least 750 hours a year in real estate activities), the real estate leasing activities in which you participate do are not real estate consider passive activities.
• Active participation: If you are actively involved in your rental business, you can:
• Reduce passive losses to $ 25,000 if you earn less than $ 100,000.
• Active participation means that you must have participated in administrative decisions, such as:
• Find tenants
• Decide the rental conditions
• Interest in the rental business has never been less than 10% during the year.
• The amount that can be deducted will decrease for every dollar in which the income exceeds $ 100,000.
• No loss of passive assets can be deducted after income reaches $ 150,000.

Repairs

It is possible to deduct the costs of repairs made during a fiscal year. Repairs are deemed necessary to keep your property "in good working order." This does not add significant value to a property.

The repairs include things like painting. It is essential to understand that all maintenance of the property is not considered a replacement. The IRS distinguishes between upgrades and repairs.

Improvements are considered to add value to the property. Improvements are not fully deducted in the year in which they occurred. Instead, they are capitalized and depreciated over their useful life.

Travel expenses

Homeowners can deduct some travel expenses locally and over long distances. This does not include travel expenses, which means you are traveling from home to work or daily work.

If you have your car for local travel, you can deduct it using the standard mileage rate or actual expenses incurred, such as vehicle and natural gas maintenance costs. You can also deduce:

• Parking and taxes
• Interest on a car loan
• Applicable registration or licensing fees

If you do not own your vehicle, you may be able to deduct transit fees for commercial purposes.

Interest

You can deduct interest paid on business expenses, such as:

• Interest paid on mortgage payments or other commercial loans.
• Interest in auto loan repayments (but only part used for commercial purposes).
• Interest spent on credit cards used solely for commercial purposes.

Home office

You can get a home office deduction if you use part of your home solely as an office for your business, but you should make the most of it here to claim this deduction. The value you can subtract depends on the percentage of dwellings occupied by your office.

Entertainment expenses

Unfortunately, entertainment costs do not refer to the costs used for entertainment. Entertainment costs are those incurred during the activity. For instance, taking a client to an opera show or giving two movie tickets to a potential investor is an entertainment expense.

Legal and professional fees

If you hire a professional who works for you, the payment tax is deductible. This includes:

• Legal fees
• Accounting rates
• Real estate commissions
• Commissions paid to other professional consultants

Remuneration of employees

If you hire someone who works for you, you can deduct the salary you paid as a business expense. This includes the wages of full-time employees, such as a property manager and part-time employees, such as a single contractor to repair a roof leak or fix broken pipes.

Taxes

You can deduct real estate taxes, property taxes, and sales taxes on items related to business activities that are not considered depreciable for that year. You can deduct the costs of tax advice and the preparation of tax forms relating to the rental property. However, it is not possible to deduct legal costs for the defense of title deed, recovery, development, or improvement. You must add these types of payments to the base of the property.

Insurance

You can deduct premiums paid for most types of insurance, including health insurance, accident insurance, causal insurance, theft, flood, fire, liability, car insurance, and employee health.

Accident losses

If your property has been damaged by a catastrophic event, such as a fire, you can deduct some or all of the loss. The figure you can subtract will depend largely on your insurance and the cost of damage to the property.

Other current tax deductions include:

• Advertising costs.
• Revenues paid to third parties.
• Telephone calls related to rental activities. However, it is not possible to deduct the first local service line that arrives at your home. This is considered a personal line.
• You can credit or deduct expenses incurred to make the property accessible to people with disabilities or older people.
  If the property is considered a commercial building, the costs can be deducted to make it economically efficient.