Top Rental Income Tax Deductions

Many investments, including stocks and bonds, are subject to taxes above and beyond the simple income tax. Rental property ownership, on the other hand, can deliver some amazing tax breaks for landlords. While rental income tax benefits alone are no reason to run out and buy up rental properties, they’re worth considering when researching investment options and important for landlords to keep track of.

For anyone who’s a current or prospective property owner, let’s start right out with the all-important disclaimer: Tax results can vary based on your specific set of facts and circumstances.  Consult with a tax professional or certified public accountant to determine how these and other tax ramifications of rental property ownership apply to you.”  

With that out of the way, here are a dozen key tax benefits for rental property owners:

1. Repairs: Repairs you make to your rental property are generally deductible in the year they’re expensed. Larger projects classified as “improvements” might need to be depreciated (see #3 for more) rather than deducted, so check with your accountant. Every plumbing, heating, electrical or carpentry repair could be a deduction reducing  your rental income.

2. Interest expense:

3. Depreciation: This deduction is like a gift of cash off your rental income tax bill, because you don’t actually spend any money in order to receive it. You can deduct a portion of the structure’s cost each year as depreciation (the value of the land is not depreciable). Get more details about rental property depreciation and see examples here.

4. Marketing: Whether you advertise your property in local newspapers or magazines, or pay to place it on a rental property website, every paid ad you run for tenants is a deductible expense.

5. Travel expenses: As long as the primary reason for the travel was related to rental property activity, both local and long distance count toward this deduction. Typical travel expenses might include:

• Meeting a prospective tenant for a showing
• Driving around doing market research or checking out homes for purchase
• Attending a landlord seminar or course for rental investing — check with your accountant for advice on which hotel, airfare, car or other expenses you can deduct and how to prove them
• Trips to the hardware store for materials

6. Independent contractor expenses: You may be hiring landscapers, painters or exterior cleaners as independent contractors. You can deduct what you pay them.

7. Employee expenses: If you hire someone as an employee — as opposed to a contractor — to do maintenance or management tasks, you can deduct their wages and related benefits against income.

8. Insurance: You must insure your investment, and if it’s mortgaged, your lender will require it as well. Insurance premiums are deductible — this includes liability, casualty and any other insurance related to the rental property.

9. Local property taxes: Real estate taxes are everywhere, but you can deduct the county, city and school taxes you pay on the rental property.

10. Theft and casualty losses:

11. Legal, accounting and management services:

12. Offset other investment income:

These rental income tax breaks can add up to big savings at tax time and make your investment even more profitable. Work with your tax preparer to see how you can take advantage of these beneficial deductions for rental property owners.

For more detailed information and publications specific to rental income and expenses, visit the Internal Revenue Service website.