5 Rental Property Tax Deductions You May Qualify for as a Landlord

Learning what can be deducted from your taxes as a landlord or property owner is very important if you want to maximize your profit on a rental property. If you’re considering buying your first rental property, or already have a property in the Burien, Washington, area and want to make sure you’re claiming as many deductions as possible, this article is definitely for you!

What Expenses Are Tax Deductible for Rental Property?

We’ve summarized some of the more common tax deductions for landlords on rental properties as a quick reference guide. Take a look to see what deductions you may have missed. 

1. Depreciation of Rental Property Tax Deduction

Depreciation serves as a tax allowance that acknowledges the inevitable wear and tear and eventual obsolescence of the property. As time passes, wear and tear naturally diminish the value of an asset, including real estate. As a rental property owner, you can claim the depreciation of the property each year for a span of 27.5 years. It's important to note that only the structure or building itself is depreciable, while the land it sits on does not lose value since land is considered to be a lasting asset.

Also, owners can depreciate certain larger expenses for personal property, such as appliances or furniture, over time. Lastly, it's essential to keep in mind that any costs associated with property improvements are factored into the adjusted cost basis in the year they are incurred. Examples of the improvements that would qualify for an adjusted cost basis could be updated light fixtures, new countertops, retiling the bathrooms, and replacing the HVAC, and appliances. 

2. Mortgage Interest Deduction

One important tax deduction related to investment properties that you should be familiar with is the mortgage interest deduction. This deduction is not only applicable to primary and secondary residences but also extends to various types of rental properties that have a mortgage. 

You will report any mortgage interest paid as an expense on Schedule E of Form 1040. Unlike itemizing your mortgage interest deductions on your home, there is no limit on the amount of debt for which you can claim the deduction.

3. Property Repair Tax Deduction

Certain updates are classified as repairs rather than improvements and are handled differently for tax purposes. In simple terms, a repair involves addressing or replacing something that is broken or no longer functional. For instance, if you need to fix a broken banister in the stairwell or repair the roof on your rental property, these expenses would fall under the category of repairs, and you can typically deduct their costs on your tax return.

On the other hand, upgrades or improvements made to a rental property are generally not deductible as repairs. Instead, those costs are depreciable over the useful life of the property. It's worth noting that if you offer a rental credit to a tenant in exchange for performing a repair, you can also deduct this credit.

4. Operating Expenses Deduction

If you decide to hire a property management company to take care of your rental properties, the expenses involved are usually tax-deductible. You can also deduct various tenant screening costs, such as background checks, credit checks, or reference checks. Other necessary expenses for property upkeep are typically deductible too. These may include:

• Landscaping
• Repainting 
• Appliance maintenance
• Dealing with pest control
• Seasonal property maintenance 

5. Travel Expenses Deduction

Many people know about deductions for job-related travel expenses, but did you know you can deduct many travel expenses related to caring for and managing your rental property? If you need to travel for purposes such as managing or maintaining the property, these expenses are generally tax-deductible. Be sure to maintain records by keeping receipts and tracking mileage.

According to tax laws, only necessary travel expenses can be deducted. This means the costs should not be lavish, such as first-class flights. Here are some examples of deductible travel expenses:

• Transportation costs 
• Taxi or ridesharing fares, but only when traveling between a hotel and the rental property
• Lodging 

Also, expenses for travel in order to make upgrades to a rental property are not tax-deductible because these specific costs are considered a depreciation deduction. 

Take Advantage of These Tax Deductions and Make the Most of Your Rental Income

When you invest in a rental property, you want to make the most of it. This includes deducting the highest amount possible on your taxes. One expense you’re able to deduct is the help of an experienced property management company. 

Powell Property Management has been in business for over one hundred years, caring for properties as if they are our own so you can enjoy other aspects of your life without worry. From excellent communication to 24/7 maintenance needs, we offer a wide variety of services to property owners in Burien, Normandy Park, and other areas that could be deducted from your taxes. Contact us to learn more about property management and investing in rental properties today.  

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