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Income Tax Deductions
Income tax deductions enable a real estate investor or landlord to decrease their rental income. If a real estate investor or landlord receives rental income from the rental of a dwelling unit, there are certain rental expenses that a real estate investor or landlord may deduct their tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.
Other income tax deductions that a real estate investor or landlord can deduct are the ordinary and necessary expenses for managing, conserving and maintaining their rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.
The cost of repairs that real estate investor or landlord makes to rental property are income tax deductions. A repair keeps real estate investor or landlord’s property in good operating condition and does not materially add value to the property. Examples are painting, fixing leaks and replacing broken doors or other parts of the rental property.
Others expenses paid by the tenant are income tax deductions if they are deductible rental expenses. When real estate investor or landlord includes the fair market value of the property or services in their rental income, real estate investor or landlord can deduct that same amount as a rental expense.
Cost of improvements are not income tax deductions. An improvement adds to the value of their income property, prolongs its useful life, or adapts it to new uses. The cost of improvements is recovered through depreciation. Examples are adding a deck, a new fence or roof. The cost of improvements is recovered through depreciation.
Real estate investor or landlord can recover some or all of their improvements by using Form 4562 to report depreciation beginning in the year their rental property is first placed in service, and beginning in any year real estate investor or landlord make an improvement or add furnishings. These expenses must be depreciated over the useful life of the property. Only a percentage of these expenses are deductible in the year they are incurred.
For details on rental property income tax deductions, check out the rental property tax deductions.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Income Tax Deductions is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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