Once again, it’s that time of year. While filing taxes may never be your favorite task, chances are tax season will be incrementally better the more deductions you make. The good news is that there are a lot of deductions available to property owners. But the question is: Are you taking advantage of them? According to legal publisher Nolo, “Every year, millions of landords pay more taxes on their rental income than they have to … because they fail to take advantage of all the tax deductions available.”
You don’t want to miss out on any of the deductions coming your way. To make sure you’re maximizing on deductions, be in the loop about these common deductions you can (and should!) be taking full advantage of.
Interest
This is a big one and it doesn’t apply just to the interest on your mortgage—you can also count interest on credit cards (for property-related purchases only) and on loans used to make property improvements.
Repairs
Both big and small repairs are fully tax-deductible for the year in which they are incurred. This represents a double-win for property owners—you’re simultaneously maintaining or improving the value of your property and earning a deduction while you’re at it. Just be sure that the repairs are “ordinary, necessary, and reasonable in amount.”
Contractor Work
If you needed another reason to keep careful track of your expenditures, here it is. Whenever someone performs a service to your property, his wages can be counted as a tax-deductible business expenditure.
Local Travel
This can represent a significant deduction for property owners when you consider the mileage racked up in the process of showing units to potential renters, driving around to pick up supplies, and checking in on properties. According to Nolo, you’re eligible for this deduction if you drive a car, SUV, van, pick-up, or panel truck.
You can claim this deduction by either: 1) adding up the actual expenses of gasoline, vehicle upkeep, and repairs, or 2) using the standard mileage rate (55 cents per mile for 2009, 58.5 cents per mile for July 1, 2008 through December 31, 2008, and 50.5 cents per mile for January 1, 2008 through June 30, 2008).
Enhancing Efficiency
According to the Energy Policy Act of 2005, improvements to the energy efficiency of interior lighting systems, heating, cooling, ventilation, and hot water systems are eligible for tax deductions. It’s important to note, however, that certification of energy efficiency and certain qualifications must be met in order to obtain this deduction. Specific information can be found on the IRS website.
Preserving History
If you happen to own an older building, you may just be eligible for a Rehabilitation Tax Credit. This provides a credit for 10 percent of the rehabilitation cost of buildings placed in service prior to 1936.
And if all of this still sounds a bit overwhelming, remember that your accountant’s fees count as a tax deduction as well. For more information on reporting income and expenses to the IRS, be sure to check out Real Estate Tax Tips provided by the IRS.
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