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If you have employees, you can usually deduct the cost of their health and workers’ compensation insurance, too. Although insurance premiums tend to be a bit higher for rentals, this deduction can help offset that. Property owners can also deduct losses, including those caused by earthquakes, floods, or theft.

5. Maintenance and Repairs

The fifth most common tax deduction on rental properties are maintenance and repairs. While home improvements are deductible through depreciation, the tax code does allow you to deduct certain repair and maintenance costs separately. A big difference is that these efforts keep your property in rentable condition, but do not add significant value. This deduction is often taken fully in the year the expense was incurred, rather than over time.

When doing maintenance and repairs, if you hire someone else to do the work, you may be able to deduct the labor costs. The same goes for costs associated with hiring or employing property or on-site managers, as well as homeowner association and condo fees. If you take the “do-it-yourself” approach, you can often deduct any rental fees for tools and equipment.

6. Utilities

The sixth most common tax deduction for rental properties is utilities. While every housing provider handles utilities differently, if you choose to cover things like gas, electricity, water, heating or AC for your tenant, those expenses may be deductible. If you pay for internet, cable, or satellite, you should be able to deduct those as a utility expense as well. Even if your tenant agrees to reimburse you for utilities later, you can continue to file the rental property deduction and claim the reimbursement as income.

7. Legal and Professional Fees

The seventh most common tax deduction for rental properties is professional fees. Property owners can deduct certain professional fees in relation to the rental property. If you use a CPA or computer software to prepare your tax returns, be sure to deduct the cost. If you hire a lawyer to oversee rental paperwork at any point in the year, you can deduct those hourly fees. If you used a real estate agent to find your tenants, you may be able to deduct the commission as well as any advertising or marketing costs. Even advisor services can often be written off so long as you meet to discuss the rental property. If you have to evict someone, your legal and court filing fees are usually deductible. These are all considered operating expenses.

8. Travel and Transportation Expenses

The eighth most common tax deduction for rental property is travel and transportation expenses. If you’re a property owner who travels to multiple properties or your rental is located far from your residence, your transportation expenses may be deductible. This includes paying to show your rental property, collecting rent in person, and keeping an eye on your rental property throughout the year. There are two ways that you can deduct travel. The first is actual expenses or you can use the standard mileage rate.

9.

Office Space

The ninth tax deduction for rental property is office space. Whether you conduct business in a commercial property or a spare bedroom, you can often deduct the accompanying costs. Square footage or rental cost will probably be the largest expenses. However, you may also be able to include the price of a printer, computer software, and anything else you use to run your real estate business.

Keep documentation of the purchases you make and record the time you spend managing your rental property. This is one of the most commonly flagged deductions, so be sure you’re keeping good records and being honest about the breakdown between business and personal use.

How to Claim Rental Property Tax Deductions

You’ll most often file rental property tax deductions the same year you pay the expenses. Work with your tax professional to determine the extent of your deductions and you overall tax strategy. The process will be much more manageable if you keep detailed records of all income and costs related to the property as they occur. Plus, if you’re ever audited, you’ll have to provide proof for every deduction you claim.

Real estate has a myriad of tax deduction benefits that other investments, like stocks, don’t. This is one of the unique differentiators that can make real estate an exceptional investment, and why it is an outstanding go-to vehicle for wealth building.

If you have ideas for other tax deductions related to rental properties, I would love to know so that I can share the information.

About the Author:

If you would like to have a conversation about creating a personalized strategy for cashing out with minimal or no capital gains tax, or if you would like help with buying, selling or doing a 1031 exchange, I’m happy to help! Feel free to contact me. I can be reached at 714.330.9999, InvestingInTheOC@gmail.com, or you can visit my website at InvestingInTheOC.com. I’m Mercedes Shaffer, a real estate agent with Coldwell Banker, helping you build wealth one door at a time. DRE 02114448.

Director’s Message — continued from 42 association’s Product & Service Council (PSC) members and its rental property owner and operator members. This includes Multifamily Mingles, Summer Cruise, Reverse Trade Show, Angels Game & Tailgate, and more.

Our committee members provide a very valuable service, and their insight, guidance, and leadership is appreciated. If you are interested in volunteering or learning more about a particular committee, contact Spartacus Avina at (714) 2459500 x1401 or membership@aaoc.com.