Yesterday was the first day of Spring, which means warmer weather ahead–but it also means tax season is well underway. While only your accountant can give you true tax advice, here is some basic info that can come in handy when filing as a landlord.
Q: As an owner/landlord, what can I claim as a deduction against rental revenue?
A: This one is fun: the list is extensive. Among other things, you can claim depreciation, home office expenses, the cost of insuring your rental property, all “ordinary and necessary” property management expenses, certain repairs and improvements, mortgage interest, repair and maintenance expenses for the property, any professional real estate services you utilize, and travel expenses related to your rental business (both local and long-distance).
Q: At what rate can I claim my home office as a deduction?
A: If you have a dedicated space in your home from which you conduct rental business, you can claim part of your home expenses as a deduction against your rental revenue. And starting in 2013 (filing in 2014), Turbotax explains, there’s now a simple way to claim it. You may claim $5 per square foot of dedicated space, with a maximum of 300 square feet. But remember: the space must be dedicated to rental business only.
Q: What types of insurance can I include in my insurance expenses?
A: According to Nolo, “you can deduct the premiums you pay for almost any insurance for your rental activity.” Fire insurance, flood coverage, insurance that covers theft, and landlord liability insurance may all be deductible. (If you happen to employ anyone for your rental business, their health and worker’s comp insurance is deductible too).
Q: What are is the difference between repairs and improvements–and why does it matter?
A: Deductible rental property maintenance includes certain repairs and improvements. Repairs, Turbotax tells us, are things that put the property back into its original condition. Fixing a broken window, or even changing the locks, are repairs. Improvements, on the other hand, increase the value or longevity of the property; for instance, installing solar cells on the roof. It’s important to understand the difference between repairs and improvements because repairs and maintenance are expensed in the year in which they were incurred, while improvements are capitalized, their expenses taken through depreciation.
Q: What kind of travel expenses are deductible?
A: First let’s talk local travel. We can’t stress this enough: keep track of your mileage when driving or traveling for your rental business! Whether you’re headed to your rental property or even to the hardware store, if you’re on rental business, it’s probably deductible. If you drive, there are two ways to deduct your local travel expenses. You can either deduct your actual vehicle expenses–that is, gas, upkeep and repairs–or you can claim the standard mileage rate, which was 56.5 cents per mile in 2013. You can also deduct long-distance travel if that travel is undertaken for your rental business; but keep in mind that the IRS scrutinizes overnight travel deductions pretty carefully, so be sure to keep full records of your travel.