Landlords are familiar with common tax deductions like maintenance and repairs, mortgage interest, and closing costs, but lesser know rental property tax deductions? Not so much. Are you familiar with the following five? Check with your C.P.A. or other financial professional to make sure you’re taking all the deductions you are entitled.
Let’s start with the more complicated deductions like IRS Section 280A, The Augusta Rule, which lets homeowners rent their homes for 14 days maximum without paying tax on the rental income. If the Augusta Rule sounds familiar, that’s because maybe it is. Originating in Georgia, the rule allowed homeowners to rent their space during the Masters golf tournament. Business owners can get more creative than using Airbnb or VRBO, according to sparkrental.com. “If you own a business as either a partnership LLC, S-corp, or C-corp, you can rent out your home to your business using the Augusta Rule. That lets you double dip on tax breaks: you rent the property to your business and write it off as a business expense. That transfers money from your business to you personally, and you don’t pay any taxes on it as personal income.” Please note that the rent needs to be fair market value. Find that figure via Airbnb or VRBO. Sorry, this tax deduction is not available to sole proprietors.
The Tax Cuts and Jobs Act passed in 2017 presented the Business Entity Pass-Through Deduction. Described as “a deduction for households with income from sole proprietorships, partnerships, and S corporations, which allows taxpayers to exclude up to 20 percent of their pass-through business income from federal income tax” by the taxfoundation.org, the deduction is limited for those with high-incomes.
Screening Tenants is one of the most valuable services property management companies provide. Landlords who perform their own background due diligence can deduct the costs of verifying employment and rental history, credit checks, criminal background reports, and proof of income. Note to Landlords: property management fees are also tax deductible.
Downloading template Legal Forms is commonplace and often free. If you pay for rental contracts, eviction notices, or other forms the cost is deductible. Why would someone pay for something that is available for free? Because you can buy forms that are specific to your state.
Meals. If you’re visiting properties you own, 50% of your meal cost while on the road is deductible. If you’re meeting with building contractors, real estate agents, or other professional associates you can deduct 50% of meal costs if eaten in your home market, defined as a 40-mile radius of where you live — no deductions for dining solo.
Let’s say it again: Always keep receipts and other applicable documentation. Not only is it good business practice, but you’ll be also ready in case of an audit. Bet your tax professional has told you the same thing many times.
Need a professional to review your rental documents? Place Tenants can help. Call 800-886-1193 or email [email protected].
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