Rental Property Tax Deductions

Do you own residential rental properties? This article discusses how income from those properties impacts your taxes.

What Constitutes Revenue? 

Typically, rental income is defined as any revenue you receive from the occupancy or use of residential property.  Rent, clearly, is included in that revenue.  A lot of owners are surprised to find out that rental property revenue also includes rent advancements, expenses paid by a tenant and any security deposits not returned to the tenant.  In reality, revenue could also consist of amounts paid to stop a lease, even if you had to sue the defendant to get it. 

So What Can I Deduct From Rental Property? 

Tax deductions related to rental properties are noticeably similar to those found in any business.  Technically, you could deduct any expense realistically required to "manage, conserve or maintain" the property.  Obvious deductions consist of mortgage payments, cleaning expenses, insurance premiums, service payments like landscape maintenance, repairs, maintenance, etc.  The following are some of the overlooked rental property tax deductions: 

1.   Expenses incurred in finding tenants for your rental property, 

2.   Commissions paid to third parties that arrange for tenants, 

3.   Paying your accountant and/or lawyer, 

4.   Mileage for driving to and from the property [I said, "No more parties!"] 

5.   Depreciation of the property, 

6.   Depreciation of items used in the property like washing machines, furniture, etc. 

Non Eligible Imaginary Rent Deduction 

Some creative property owners have suggested that they should be able to deduct their customary and standard monthly rent when the property is not being occupied.  The argument goes, "If the property is empty and not being rented, I'm not making any revenue and should be able to deduct the $1,600 that I am missing out on." At first sight, this can almost make sense.  Unfortunately, it doesn't fly from the perspective of the IRS.  Since you're not receiving revenues, your total revenues for the year will be decreased by the loss rent.  You can't double dip by deducting the $1,600 from the already decreased annually revenues.  However, you can still deduct all the expenses you incur during this period, but keep in mind that you can do this only for as long as you're actively trying to rent the place. 

Rental properties can be a great investment.  Even more so if you stay on top of your taxes.