The US census bureau estimates that there are as many as 20 million rental units across the US.
Rental properties can be fruitful for rental income, especially during a competitive housing market. They also come with expenses.
For tax purposes, keeping track of those rental property expenses is key to getting the income tax breaks you want and need.
If you're new to rental properties, you might wonder what qualifies and what doesn't for tax deductions in rental property. You might also wonder how to track your expenses to prepare for tax season.
Read on to learn more so you get all the advantages of owning rental property.
Rental Property Common Expenses for Tax Purposes
One of the benefits of owning a rental property is the tax deduction incentives that can be used because of your ownership.
Operating expenses might include things like your mortgage interest. For example, if you took out a mortgage to buy the property, you can deduct the interest at tax time.
Other operating expenses might include things like marketing and advertising for the property. You could also write off utilities, property taxes, and insurance for the property.
There are also deductions for rental property maintenance and repair costs. These costs could include everything from emergency repairs to preventative and seasonal maintenance.
What Can You Not Use for Tax Deductions?
While the options for deductions are many and valuable for rental property owners, there are some things the IRS doesn't allow for rental property write-offs. For example, any personal expenses that can't be tied explicitly to the rental property aren't allowed as a deduction.
You may do some things to your property that the IRS considers an upgrade versus just a repair. An upgrade and repair can be deducted in some form. You may have to write off an upgrade over time using depreciation.
Additionally, when a property sits vacant and isn't earning rental income, you may lose the ability to claim deductions. Owners of empty properties can't deduct certain operating costs, including mortgage interest and costs for advertising the property.
Tracking Rental Property Expenses
When you file your taxes, the IRS's Schedule E allows you to enter expenses associated with a rental property in several categories.
Of course, before tax time, keeping track of the expenses as they arise is necessary. Many property owners will create a spreadsheet or file to keep track of ongoing expenses. This can be used for deductions.
One advantage to a management company caring for your property is that you'll get an itemized statement outlining expenses for the property. You'll save countless hours on accounting, freeing up time to search for more rental units.
Get Those Tax Deductions for Your Rental Property
In addition to the rental income your rental properties afford you, they also come with many tax deductions, which are important to you as an investor. You want to know about and keep track of them to take advantage of them during tax time. That way, you can lower your rental property expenses and pocket more profits.
If you have a rental property in the greater Minneapolis area and want to learn more about the rental market, we can help. Check out our free rental analysis tool to find out how well you've priced your property.
