Tax Breaks for Rental Property That You Can Claim in 2022

If you own and oversee a rental property, you are well aware of all the costs associated with property upkeep. Regular upkeep and unplanned repairs can add up quickly. It can be difficult to know how to deduct these costs at tax time. Use this blog as a resource to learn more about the tax advantages of managing rental properties and the potential deductions you can make.

What Is a Tax Deduction for Rental Property, and How Do I Claim One?

A qualified expense associated with the maintenance, management, and operation of a rental property is a rental property tax deduction. A rental property tax deduction, like other tax breaks, lowers the amount of income that is liable to both state and federal taxes. Simply, tax deductions for rental property can lower your overall tax burden by allowing you to deduct certain expenses.

This list of possible deductions for rental property is by no means exhaustive. You can review the expenses on this list as a good place to start, though.

Upkeep and Repairs

Tax deductions are available to landlords for any expenses incurred for routine maintenance and repair. You are permitted to deduct the price of those repairs from your taxable income as long as they are necessary maintenance.

You shouldn’t be reluctant to deduct those expenses from your tax return. Because a landlord must maintain their property and keep everything in working order. However, facility improvements are not tax deductible, although repair costs are.

You need to keep thorough records of these costs. Large repair costs that are unusually high or that seem unneeded are closely examined by the IRS.

Depreciation of Rental Property

Even while you might not be able to write off the cost of property improvements you make, you can still recoup part of those expenditures over time by recording depreciation.

It’s not ideal, but occasionally the value of your investment property will decrease. Don’t forget to include the loss on your tax return if the value of your rental property lowers.

If you satisfy the following conditions, depreciation enables you to write off the costs over the course of the property’s life:

  • The rental property is yours.
  • The property is involved in an activity that generates income.
  • You anticipate the house to survive longer than a year.
  • In the same year, the property was not used and was later disposed of away.
  • The asset’s useful life can be predicted.

Home Loan Interest

For your rental property, you can deduct mortgage interest as business expenditure. With the data on Form 1098, you must complete Schedule E (Form 1040) on your tax return. Each year, your lender will send you Form 1098 to show how much you spent on mortgage interest. The money you spend on paying off your mortgage’s interest might be deducted from your income. Money used to pay back the mortgage’s principal is exempt from this rule.

Real Estate Taxes

Property taxes on your rental properties are a component of your ongoing business expenses as a landlord. The cost of paying the real estate tax is a business expense. So, it can be subtracted from your overall taxable rental income.

Fees for Professionals or Lawyers

All of your required professional and legal fees are also tax deductible. This covers periodical subscription costs and dues for any professional association memberships.

Notary fees and attorney consultations are considered deductible legal expenses. The costs of hiring an attorney are considered business expenses if they are relevant to your business.

A deductible expense also includes paying an accountant or CPA to help you with your taxes.

Services

Utilities on a property are deductible business expenditures if you pay for them directly rather than passing them along to a tenant. Utility expenses for both your office and rental buildings are deductible.

Required Expenses

This is a catch-all phrase for all expenses related to owning and upkeep a rental property, including insurance, marketing, and advertising. According to the IRS, these costs should be regarded as reasonable for the sector.

How Do I Make a Tax Deduction for a Rental Property?

You may be asking how to deduct these expenses on your upcoming tax return now that you are aware of some examples of what can be deducted from a rental property. According to the IRS, Schedule E, Part I of Form 1040 or 1040-SR must include both rental income and expenses. If you own more than one rental property, you might need to submit several Schedules E.

Which Lease Documentation Ought to Be Retained?

If you keep good records, it will be much simpler to determine the tax advantages of managing rental properties. In addition to saving you time and effort when paying your taxes, doing this can lessen the burden if you are subject to an audit.

Owners are advised by the IRS to keep records that detail the following categories:

  • Payments made as part of a rental agreement, such as advance rent and tenant-paid expenses, are included in the rental income category.
  • Rental expenses: You should keep track of all costs associated with your rental property to claim deductions.
  • Your spending claims will be able to be supported by bills, receipts, and canceled checks.

Work With a Seasoned CPA to Maximize Your Tax Savings

When filing taxes for your rental property, there are numerous details to take into account. You should evaluate different payments and costs to make sure you’re deducting everything that qualifies.

This year, don’t take the chance of missing out on a lucrative rental property tax exemption! Use Your Part Time Accountant assistance to maximize your tax deductions and savings for your rental property business.