Every year around the first quarter, landlords can rejoice and relax a bit. The suffering, sweating, angst, and watching their hard earned cash go bye-bye will actually come in handy. Why? It's tax time! New landlords, for whatever reasons, often overlook an aspect of renting that allows a portion of losses and cash outlays to be recouped. Seasoned landlords often overlook some of the vital deductions landlords are able to use.
Every year when I do our personal taxes, the landlord side of my "income" puts thousands of dollars back into our pockets. The key to doing this and surviving a possible IRS is being very fastidious with regard to what you are deducting and your ability to back it up through receipts, logs, or whatever is necessary to invoke a particular deduction. In many ways, it's no different than doing your personal taxes and taking a deduction: Always provide a means to document what you deduct just in case you are called upon to do so!
Here are five of the often overlooked deductions landlords need to consider when doing their taxes:
- Travel. Are you the main go-to person for your properties and drive to field complaints, collect rent, inspect property? Did you drive to your property to check it out long after the tenants were put in? It doesn't matter. What does matter is the mileage you put on your vehicle to perform land lording duties is tax deductible. So is a portion of what you used to keep your vehicle running (fuel, repairs, etc) Log the miles driven when you use the vehicle for landlord purposes and keep your receipts.
- Interest. Do you have a mortgage on your property? If so, the interest on the property is deductible which includes any late fees you had to pay the lien holder!
- Insurance. Do you have a fire and wind policy on your property? You can deduct the premium you paid for the policy.
- Contractors. Were you forced to hire someone to fix the furnace or the leaky toilet? If you do such type of hiring versus doing the work yourself, then deduct what you've paid out-of-pocket for those repairs.
- Casualty losses. Did a wind storm knock a tree over on your house? How about a fire? Did your property become partially destroyed (or totally) due to some incident? You can deduct the losses depending on some circumstances such as if insurance covered the loss or not. All of the loss cannot be deducted but a portion of it can.
When you're doing your taxes, keep in mind the myriad of deductions landlords can use to their advantage. Some readily available tax preparation software does a decent job of quizzing the user on such deductions. A qualified tax preparer will know to ask about these deductions. If you're going at this alone, it will pay for you to become familiar with the tax deductions available to landlords.
Note: As always, these are my opinions. I am not an attorney nor is this to be construed as legal advice. Consult a qualified attorney if you have any questions or doubts.