When tax season rolls around, it pays to know each and every expense your rental property business has paid over the previous year. After all, the better you are at tracking common rental property expenses, the more you can deduct from your taxes. That’s good news for rental property owners!
Common Rental Property Expenses
The following are some (but by no means all) of the most common expenses paid by rental property owners. Each and every one is tax deductible.
Closing costs – If you’ve purchased a rental property in the last year, then the closing costs associated with that purchase are largely tax deductible. According to the IRS, the deductible closing costs include interest, certain mortgage points, and deductible real estate taxes.
Professional fees – Be sure to keep track of all the fees you pay for various professional services related to your rental property. These include real estate broker fees, as well as fees paid to accountants, attorneys, tax advisors, and so on.
Marketing and advertising expenses – Marketing your rental property is a considerable ongoing expense, and the cost of advertising is fully tax deductible. That includes running ads, printing and posting signage, website costs, and professional photography.
Tenant screening costs – You can deduct the fees associated with screening your tenants. That includes running a credit and background check, searching criminal, rental and employment history, and verifying social security numbers.
Property management fees – Property management professionals carry out any number of tasks to keep your rental business running smoothly. Their services range from leasing and collecting rent to overseeing maintenance and repairs, and the fees you pay your property management company are all tax deductible.
Materials and supplies – The cost of supplies might seem insignificant when you look at them individually, but they can really add up! Anything from office supplies and light bulbs to gas for your lawn mower is potentially deductible on your taxes, so keep track of everything.
Maintenance and repair expenses – Continuously repairing and maintaining a rental property can be expensive. Fortunately, it’s also tax deductible. From routine maintenance like cleaning the gutters to unexpected expenses like replacing a water heater, it’s important to keep careful track of all your maintenance-related expenses.
Pest control costs – Oh, those pesky pests! They can be annoying, but there’s a silver lining. All pest control costs associated with your rental property are deductible.
Utilities – It’s usually up to your tenants to pay their own utility bills, such as gas and electric. But in larger properties like apartment complexes, there may also be master utility bills that are paid for by the owner.
Taxes and insurance – Most taxes other than income tax are deductible, including property taxes and school district taxes. Same goes for insurance; be sure to factor in any rental property insurance policies you pay for.
How to Track Rental Property Expenses
It’s important that rental property owners keep an accurate and ongoing record of all income and expenses. In addition, you should always keep backup or supporting documents (i.e. receipts) to prove that each expense you deduct on your taxes is legitimate.
That may sound tedious, but if you ever get audited by the IRS, you’ll be glad you did the extra work! Keep all of the above well organized in a safe place.
Of course, the easiest way to ensure that all your income and expenses are documented and accounted for is to hire a professional property management company that will do it for you. Most reputable property management companies provide a full range of financial services to make paying taxes as a landlord easier.
Contact us today to learn more about working with a team of property management professionals.