Understanding Rental Property Tax

Renting out a property is a big responsibility. To supplement this responsibility, there are many different types of tax benefits. These benefits are oftentimes what determines whether a landlord makes a profit on a rental property or not. Continue reading for a list of common types of tax on rented property.

1. Interest
Interest can be a landlord's largest deductible expense. The two most common examples of interest that landlords deduct are mortgage interest payments on any loans taken out to improve or purchase the rental property and the interest on credit cards for any type of goods and services used or purchased during the rental process.

2. Depreciation
In the year someone pays for a rental property, its cost isn't fully deductible. What happens is landlords receive back the full cost of the rented real estate through depreciation.

3. Local Travel
If a landlord drives anywhere locally for their rental activity, then they qualify for a landlords tax deduction. For example, if a landlord drives out to a tenant's apartment building to deal with a complaint, then it counts as a travel expense. Landlords have two options for calculating travel expenses. If they qualify, they can use the standard mileage rate, otherwise they can calculate the actual cost of the trip, such as gas, repairs, and upkeep.

4. Overnight Travel
If a landlord's rental activities necessitate overnight travel, they are able to deduct any travel expenses. This includes everything from hotel bills to airfare to meals. It's possible to have fun on these trips and mix business and pleasure, but it's extremely important to document specifically which aspects are for business. Overnight travel is closely inspected, so it's important that all deducted costs are strictly business.

5. Repairs
Rental property repair costs are fully deductible given that they are necessary, ordinary, and not excessive in amount. Common examples of deductible repairs are: plastering, repainting, replacing broken windows, and repairing gutters or leaks.

6. Insurance
Insurance premiums that are related to a landlord's rental activities can be deducted. These deductions include property insurances in the case of theft, flood, or fire, health insurance for anyone who is employed under the landlord, and landlord liability insurance.

7. Professional Services
Lastly, any fees accrued due to visiting professionals for rental activity purposes can be deducted. These professionals include lawyers, property management companies, accountants, and real estate advisors.

Renting out property isn't only difficult, but it can be expensive. However, tax on rental income eases the stress by increasing profit. It is vital that landlords research the various types of tax benefits that are available and make use of them.