Rental property is just about the leading investment option in tax benefits. Nonetheless, a huge population of residential and commercial building owners- probably due to misinformation, do not maximize on these tax deductions. As a result, these lessors end up remitting a lot more in taxes annually than they really need to. Highlighted are 10 tax deductions that landlords of small residential rental properties can utilize to directly impact their profits.
1. Paid Interest. Interest takes the lion's share of deductible expenses for a landlord. Interest paid on loans borrowed for the purpose of acquiring or renovating rental property is deductible. The same applies to interest on credit card payments for goods and services rendered for the same purpose. Beginning in 2018, there is a limit imposed by the Tax Cuts and Jobs Act for lessors earning over $25 million in rental income. Nevertheless, instead of depreciating their rental assets over 27.5 years, they can have it done over 30 years to counter this ceiling.
2. Value of Depreciation. The concept of depreciation allows landlords to recover the cost of rental assets which is usually not fully deductible within the initial year of paying for it. This is achieved through annually deducting a percentage of that cost through a given number of years.
3. Utilized Personal Assets. When a lessor's personal possessions such as machinery, gadgets, and furnishings are employed in rental business, their cost is deductible in two ways;
a) De minimis safe harbor deduction (for assets worth up to $2000)
b) 100% bonus depreciation (effective 2018-2022)
4. Price Of Repairs. Expenses incurred for the significant mending of a rental property such as sealing leaks, repainting and fixing cracks are fully deductible in the same year. Improvements do not apply.
5. Travel Expenses. Expenses incurred during movements to and from the rental premises for rental affairs such as supervising repairs or solving tenant disputes whether driving or by air are deductible. Drivers of vans, pickups, cars, trucks or whatever vehicle used for rental activity have the option of deducting the actual expenses incurred say fuel or use the standard mileage rate deduced from the IRS website. To be eligible for the latter, it must be in the first twelve months you use the car for rental purpose. Air travel expenses including boarding and meals need to be supported by proper documentation to back up your claim beyond reasonable doubt.
6. Pass-Through Tax Deduction. The Tax Cuts and Jobs Act has introduced a pass-through tax deduction. It is a special income tax deduction commencing 2018 and expiring after 2025. Most landlords are eligible as it is dependant on their income. The deduction can be either of the two;
a) Amount not exceeding 20% of net rental income.
b) 2.5% of the initial value of the rental asset in addition to 25% of employees salaries and/or wages.
7. Insurance Premiums. Premiums paid to cover the building against any perils; fire, burglary or floods as well as employees medical insurance and worker's compensation are deductible. Landlord's insurance liability also qualifies.
8. Remuneration of Employees. Salaries and wages paid to employees or private contractors to carry out rental related work or render services can be deducted as rental business expenses.
9. Expenses from a Home Workspace. Any expenses arising from a home workspace specifically dedicated for rental business be it a home office or workshop can be deducted from the landlord's taxable income; as long as it meets the minimum requirement.
10. Charged Professional Fees. Landlords are at liberty to deducts as operating expenses, any charges levied by professional. These include charges by legal representatives, financial consultants, real estate agents or investment advisors for services directly related to the rental property.
6 Facts Landlords Need To Know
