Own Rental Property? Here Are Some Tax Deductions

Own Rental Property? Here Are Some Tax Deductions
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Anne Johnson

During inflationary times, real estate can act like a hedge against inflation. It can also provide some stability if a recession turns to stagnation. But remember, even when inflation is roaring, people still need housing.

It’s common knowledge that a mortgage’s interest can be deducted on a primary residence. But what about rental property? What tax deductions are available? Here are the top 10 tax rental property deductions that you can take.

1. Depreciate Personal Property

A rental property owner can save by depreciating personal property. This is allowed based on the property’s wear, tear, deterioration, or obsolescence. But this is limited to a set number of years.
For example, fences and driveways are depreciated over a 15-year rate, while carpeting, furniture, and appliances are a five-year rate.

2. Betterment and Adaption to Property

There is a difference in deductions regarding improvement to a property and repairs.

An improvement is considered a capital expense, and deductions are taken as depreciation over time. But repairs can be deducted in the same year.

This is where adaption and betterment come into play. If you are adapting the property to a new use or rebuilding the property to improve it, you may be able to deduct the expense. You can’t deduct an improvement as an improvement if it took a loss for damage.

Discuss these deductions with your certified public accountant (CPA).

3. Deduct Local and Long-Distance Travel

If you must travel locally, you can expense the use of your personal vehicle. There are two ways to do this: you can deduct the actual expense or the IRS standard mileage rate.
But if you must travel a long distance to check on your rental property, you'll be able to deduct it. This includes overnight travel, hotel bills, meals, airfare, and miscellaneous. Other deductions can be taken. But be sure to keep proper records, or you could run into trouble with the IRS.

4. Home Office to Conduct Rental Business

If you own a home office that you use exclusively for your rental property business, you may be able to deduct it. If you use a workshop to help in repairing rental property, this may also be deducted. Check with your CPA to see how you may qualify.

5. Depreciation Required by IRS

Rental property is depreciated over 27.5 years. The building is depreciated by taking the cost of the building and dividing it over 27.5 years. The land isn’t depreciated, only the building.
But there’s a catch with the IRS when you go to sell the property—the recapture tax. This takes effect if you sell the building for more than the depreciated value. So, the IRS wants the money back that you depreciated. They charge a 25 percent recapture tax.
You may be tempted to not take the depreciation deduction to avoid this. But the IRS requires this depreciation and will charge you whether you take it or not. So, you might as well take the depreciation now and get the short-term benefit.

6. Deduct Insurance

The cost of property and casualty insurance premiums can be deducted on your rental. In addition, if you have employees, you can also deduct their worker’s compensation insurance and health insurance.

7. Current and Capital Expenses

A rental owner has two types of expenses: current and capital.

Day-to-day operational expenses like utilities can be deducted from your gross rental income in the tax year.

With capital expenses are purchases that last more than one year and generate future income. Some capital expenses are equipment or land. They are deducted over several years. Ensure you receive the best possible deductions by consulting with a CPA.

8. Pass-Through Deduction Until 2025

Established by the Tax Cuts and Jobs Act (TCJA) by President Donald Trump in 2018, the pass-through deduction is a special income tax deduction, not a rental deduction. This allows rental property owners to deduct up to 20 percent of net rental income. It also allows a deduction of 2.5 percent of the initial rental property cost and 25 percent of any wages paid to employees.

9. Professional Services and Legal

As long as work it’s related to rental property business, specific fees can be deducted as operational costs. These include accountants, property management companies, attorneys, etc.

10. Interest Rate on Mortgage

If a loan was used to purchase the rental property, the interest for the mortgage can be deducted. But there are restrictions.

For example, if you purchased your home after Dec. 15, 2017, interest can be deducted from up to $750,00 of debt. But if you bought that home on or before that date, you can deduct up to $1 million on the debt.

The TCJA raised the standard deduction from $6,350 for single filers and $12,700 for joint filers to $12,550 for single filers to $25,100 for joint filers. This increase made itemizing deductions, like mortgage interest, unnecessary. Check with your CPA on which route makes most sense for your economic situation.

Many Deductions for Rental Property Owners

There are several ways to take rental property tax deductions, from the TCJA pass-through tax to current and capital expenses. These are the top 10, but there are others that aren’t covered. Check with a CPA to take advantage of all the deductions you deserve.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Anne Johnson was a commercial property & casualty insurance agent for nine years. She was also licensed in health and life insurance. Anne went on to own an advertising agency where she worked with businesses. She has been writing about personal finance for ten years.
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