Lower Your Taxes and Raise Your Income with Rental Property Deductions
If you’re planning to buy Utah real estate as an investment, you may not realize that you can lower your taxes and further boost your income by deducting many of your rental property expenses. You probably don’t want to pay more for operating costs than you need to, but you may be paying more taxes on your rental income than necessary, as rental real estate offers more tax benefits than nearly any other investment.
Millions of landlords pay more in taxes than they need to every year, simply because they aren’t taking advantage of these great deductions! Here are the most important rental property deductions you should understand if you own a small residential rental property.
1. Interest Deductions
This will probably be your biggest deductible expense, and you can deduct the interest on your mortgage payments used to acquire or improve the property, as well as interest on credit cards and other loans you use to provide services or goods for the property.
The actual cost of your Utah real estate isn’t fully deductible in the year you buy it, but you do get the cost back through depreciation. You can deduct a certain amount of the cost of your rental property over years.
Any costs you pay to repair the property, assuming they are necessary, ordinary and reasonable, are fully deductible during the year you incur them. This includes repainting, fixing leaks, replacing broken windows, repairing gutters, replacing appliances and much more.
4. Local Travel Deductions
You can take a take deduction if you need to travel anywhere for rental activity. A good example of this is driving to your rental property to deal with a complaint, or traveling to the hardware store to purchase parts to make a repair.
If you drive a vehicle for your rental activity, you can choose to deduct your actual expenses, which includes repairs, upkeep and gasoline, or you can use the standard mileage rate, which is 56.5 cents per mile for 2013. To use the standard mileage rate, you need to use this method the first year you use your car for business activity, and there are certain exceptions.
5. Long Distance Travel Deductions
Do you need to travel overnight for rental activity? If so, you can deduct airfare, hotel costs, meals and many other expenses. Be aware the IRS will carefully examine your overnight travel deductions, and many taxpayers have been caught without the documentation to back them up. Make sure you keep receipts!
6. Home Office Deductions
Assuming your office meets certain requirements, you can deduct your home office expenses as well.
7. Employees or Independent Contractors
Have you hired anyone to perform services for your Utah rental property? If so, you can deduct wages as a business expense.
If your Utah real estate is damaged or destroyed by a fire, flood or other event, you can often get a tax deduction for all or part of the loss. This is referred to as casualty losses, and the amount you can deduct depends on how much of the property was destroyed and whether it was covered by insurance.
Speaking of insurance, don’t forget to deduct premiums you pay for your rental property. This includes flood, theft and fire insurance, along with landlord liability insurance and health and workers’ compensation insurance if you have employees.
Finally, don’t forget you can deduct any fees you pay to accountants, property management companies, lawyers, real estate investment advisers and many other professionals, as long as you paid the fees for work related to your rental business.
If you’re planning to rent out Utah real estate as a landlord, make sure you take advantage of these money-saving deductions and don’t forget you could lose your deductions if you rent out the property to family or friends. To learn more about how tax deductions can save you money and increase your income when you invest in Utah real estate, contact the Frei team today!