Rental property has a number of advantages. It’s a mostly passive source of income that will allow you to improve your personal financial portfolio. Real estate tends to grow in value over time, rather than depreciating as an investment. Not only that, however, a rental property may have unexpected tax advantages. The problem is, all too many people fail to claim the maximum possible tax deductions from their rental properties. This leaves them struggling to pay the bills at the end of the year.

Are you missing out on some of these top tax deductions for your rental property? Last year there were falling prices and rising interest rates. You may have found yourself desperate for something that can add a little income back to your pockets; and thanks to these tax deductions, you may be able to do exactly that. 

Interest Expenses

As the loan you took out on your rental property builds interest, you can receive a tax deduction for that interest. You won’t receive a tax deduction for the amount of the loan itself or the payments you make on it. However, you can receive deductions for the interest–if you remember to file them. Interest expenses are one of the biggest tax deductions many people have the ability to make for their rental properties. For many landlords, interest expenses are the top deduction on their tax returns. Make sure that you don’t miss out on that opportunity to put money back in your pocket!

How it’s missed: Many people fail to separate their investment property loans from their personal loans. As a result, they may not recognise that they’re able to deduct the costs for those important loans that make it possible for them to continue with their property investments. 

Depreciation

Not everything increases in value every year. In many cases, rental property investments can require substantial financial input. Air conditioners, carpets, the roof: what do you have on your investment property that decreases in value each year or, even more critically, as soon as you purchase it? While you need to invest in those items to keep renters moving through your property, you may also find that their actual value decreases over time, rather than increasing along with the rest of your investment. Many of those depreciating items, however, can be claimed as tax deductions. Depreciation is often the second most valuable deduction on your tax return. 

How it’s missed: Most owners don’t think about how depreciation can impact their tax returns. Working with a qualified accountant is one of the most effective ways to develop a better understanding of how your property values have depreciated this year and what items should be deducted from your taxes. 

man working with accountant to determine tax deductions

Expenses

Sometimes, you may find yourself sitting on a rental property, unable to rent it out for a period of time. If the home is on the market for rent but simply is not attracting the right renters, and if you can prove that you’re taking the right steps to get it rented out, you may be able to deduct expenses for maintaining the home while it’s empty. This can include the cost of utilities, yard work, and more. You won’t be able to deduct expenses that were paid by your renters. This includes their water and electricity, for example, even if it’s included in the cost of the rent. However, you may be able to deduct expenses that add up when the property is empty.

You may also be able to include unexpected expenses that occur as a result of disaster. This includes natural disaster when you’re filling out your taxes. Did your rental property experience a natural disaster–or a not-so-natural disaster? This could be in the form of tenants who took very poor care of the property. If so, you may be able to deduct some of those expenses from your taxable income for the year. From repairing the roof after a nasty hailstorm to covering flood damage or even taking care of full repairs after a nasty tenant left the home unlivable, working with an accountant can help better establish exactly what expenses can be deducted from your taxes each year.

How it’s missed: Many landlords accept that maintaining the rental property when it’s empty is simply one of the things they’ll have to deal with. Come tax time, they may not think about whether or not they can deduct some of those key expenses and make some of their money back. Other property owners fail to keep accurate records throughout the year. This leaves them scrambling to come up with the appropriate information when tax time rolls around. 

How to Establish Whether Your Tax Deductions Are Valid

Working with an accountant is the most effective way to ensure that you’re covering all the important details when it comes to your rental property. However, there are some guidelines to keep in mind. 

How often is your property available for rent? For example, holiday rentals may reasonably be expected to rent only during specific seasons. Maintaining them the rest of the year may not be tax deductible. 

How much of the property is available for rent? You might, for example, only rent out part of your property at any given time, whether you choose to live in the rest of it or use it for another purpose. Only the portion used as a rental property is available for rental property deductions. 

Are you aware of all the deductions you can claim on your taxes as a result of your rental property, or are you struggling to keep up with those deductions? When was the last time you sat down with an accountant to really talk about your taxes, including the amount that your rental property can save you in deductions? If you need a qualified accountant who understands the ins and outs of rental properties and can help you acquire more funds from your tax return, contact us today to set up an appointment to discuss your rental property and your tax needs. You don’t want to leave money on the table, and we’re here to  help!