An owner of a rental property is eligible for tax deduction from the earnings of gross rent provided the owner makes the following expenses in the current fiscal year. However, the landlord cannot claim tax deduction if he utilizes the services of his own labor force for maintenance and repair work. The expenses are:
· Rent
· Cost of maintenance
· Home insurance
· Service charges for water or electricity
· Management fees such as agent fees for rent collection
· Advertisements for attracting new tenants
· Payment of fees to the accountant for rental accounts
· Interest on home loans
The interest amount from your mortgage as well as property taxes is eligible for tax deductions. However, the landlord has to pay income tax for the principal amount of the mortgage. Therefore, prior to filing your tax returns, you must carefully consider all the deductions and ensure that you do not default in the payment of income tax. However, the interest income from the mortgage as well as other loans is tax-deductible.
A property owner can claim tax deduction if he drives his car for closing a rental deal. For instance, in case you visit the rental property to resolve the complaint of the tenant or you visit the hardware shop for purchasing spare parts required for repair, the expenses are not eligible for taxation and need to be deducted from the total taxable amount when filing tax returns.
If you use your vehicle for rental activity, three options are available for tax deduction:
· Actual travel expenses such as gasoline, vehicle maintenance, or repair must be mentioned as tax-deductibles in the filing documents.
· The Internal revenue Service announces standard mileage rate, for which you must be eligible in the first year of using your vehicle for business purposes. You can exercise this option even when you have claimed tax deduction under Section 179 in the previous fiscal year.
· Overnight travel can be claimed as a tax-deductible. Expenses such as airfare, meals, and hotel bills will be deducted from the travel expenses. Smart property owners generally combine pleasure along with business of travelling for rental activity, in turn enjoying a tax deduction. The auditors carefully analyze the deductions claimed in the filed tax returns and have found many claimants do not have supporting evidence for the travel expenses. Hence, you must have the necessary documents to support your travel when you drive long distances.
A cooperative housing society involves many people occupying as well as sharing the ownership of a single unit of accommodation. The corporation is the legal owner of the cooperative apartment and it receives a single tax bill for the payment of property taxes. A percentage of the property tax bill is collected from the members of the housing society in the form of maintenance charges. When each contributing member is updated about the tax deductibles in the overall bill, the amount falls under the category of Itemized Deductions.
In case of a theft or casualty damage, you can claim tax deduction of the overall amount with assistance from the insurance company of the homeowner. The difference amount between the final settlement amount and the real cost is eligible for tax deduction. With the help of itemized returns, you can claim tax deduction on the insurance premiums such as health, casualty, theft, fire, accident, and many others.
For claiming tax deduction on the depreciation of your real estate property, you must fulfill the conditions mentioned below:
· You are the owner of the property.
· The property is meant for business purposes or for generating income from rental activities.
· It has a specific shelf life.
· The real estate property will remain intact for above a year.
Depreciation of the rental property begins when you get your first tenant. However, once you terminate the rental activity, you must stop including the depreciation costs. You must fill the tax form 4562 for paying one-time tax. Moreover, you must seek advice from a finance professional.
The IRS recognizes rental activities as passive activities. However, you cannot claim tax deduction if you do not receive any earnings from your rental property.
You can deduct expenses incurred on your home office from the taxable income. However, the real estate property must serve only a business purpose, or a workshop.
In case you hire the services of an independent contractor for maintenance or repair of your rental property, the expenses will qualify as a tax-deductible.
Have you incurred repair expenses for your rental property in this fiscal year? Then you can claim tax deduction when you file tax returns for this financial year. However, you must first understand the meaning of repairs. It refers to maintain your rental property in a working condition. Improvements or enhancements to the property are not fully eligible for tax deduction. You have to cater to the depreciation costs too.
ERNIE BUSTAMANTE
