The tax rules around owning a rental property can be confusing, and it’s common for landlords to misunderstand which business expenses can be legitimately deducted to minimize their tax bill.
Business expenses for rentals are available to those who actively manage the property, rather than a passive investor. And while it might sound obvious, the IRS will only accept claims that it deems obvious, necessary and have an immediate impact on the property.
For example, you can’t claim the rewiring of a property because that benefit is longer-term and therefore subject to amortization – a deduction made over a schedule. However, if you need to advertise for a new tenant, then that will tick the “immediate impact” box.
All claims must relate to the property, of course. You can’t pop in for an inspection of your rented Orlando apartment and then claim a day at Disney World. (although wouldn’t that be great!)
It is best to be careful about claiming items that are notorious triggers for the IRS. These include attendance of events, disproportionate transportation costs and education-related expenses. Also, be sure to check your qualification for home office expenses.
As an experienced real estate agent who has worked with many property investors and landlords, I recommend professional financial advice to set you on the right path with your investment property.
Below is a list of common expenses that may be claimed if they meet IRS criteria:
- In-Property Expenses
- Expenses for repairs, utilities, supplies, cleaning and maintenance of your investment property.
- Management Expenses
- Expenses for advertising, property management fees and related commissions, professional fees such as your accountant; in some instances, a home office to help run your investment property.
- Finance Expenses
- Expenses related to the loan interest, property taxes, insurance, depreciation and amortization of your investment property.
- Miscellaneous Expenses
- Be most careful with these. Expenses related to travel, education, event ticket fees and associated accommodation and travel related to your property investment.
These are provided as a general guide – you should seek the advice of your own accountant or financial professional who will be able to advise you based on your particular personal circumstances.