The tax deductions should be taken very seriously, and rental property owners should not fail to take their advantage in 2020. This is a great way to make some more profit through rental investments, and it is what we are going to focus on in this blog. So, let's get into the content and save the rental property owners some money!
Here are the top tax deductions landlords should make in 2020
Are you paying the insurance premiums for your rental properties? The premiums you pay for the insurance can be deducted, provided it includes fire, theft, and flood insurance for the rental property in the subject. Tax deductions can also be made on landlord liability insurance. Also, if you have employees, you can effectively deduct the cost of insurance related to their health and compensation.
Interests Paid on Loans and Credit Cards
Believe it or not, interests have been and will be a rental property owners' most significant expense that's deductible. The interests that we are talking about here are mostly mortgage interests that are paid on the loans taken to acquire the property and the credit card interests that have to be paid for buying goods and services for the rental property.
Personal Property used in Rental Project
Have you ever heard of the de minimis safe harbor deduction? Well, this is something rental property owners make the most of when trying to deduct some taxation. Rental property owners can deduct the entire cost of the personal property that has been used in a rental activity. This is, however, allowed only for properties costing up to $2000. This 100% bonus depreciation will remain in effect till 2022 and the things included in the personal property are appliances, furniture, and gardening equipment.
Depreciation for Rental Real Property
When it comes to deducting the actual cost of the real estate property, it doesn't happen in the year you bought the property. The value of the real estate property is brought back to the landlords through depreciation. What this involves is that a portion of the real estate property cost is deducted over several years in the future.
Home Office Expenses
Do home office expenses trouble you? Well, you can easily deduct them from your taxable income, provided the costs to meet all the minimal requirements. It's essential to understand it clearly. So, this deduction does not apply only to the space that you have allocated for office work. You can deduct the expenses incurred to create and maintain a workshop or any other workspace you engage in to conduct the rental business.
Repairs But Not Improvements
Did you know that the total cost of repairs to the rental property is deductible in the same year the repairs have been done? Well, this doesn't take place on all kinds of repairs. If the repairs are ordinary and reasonable in amount, rental property owners can deduct this extra expense and save money. Some of the examples of deductible repairs are plastering, repairing broken windows, fixing leaks, repainting, and more. Just make sure the repairs that you are undertaking are necessary and not an improvement.
Employees/Independent Contractors/Professional Services
It doesn't matter whom you are hiring to get the job done. You can hire an employee or an independent contractor for that matter. There are a few tax rules that every landlord that hires independent contractors is subjected to. Make sure you go through them to make the most out of this tax deduction. Rental property owners can also deduct the fees paid to attorneys, accountants, advisors, and other professionals under the operating expenses category.
Pass-Through Tax Deductions
A new pass-through tax deduction was established by the Tax Cuts and Jobs Act back in the year 2018 and ordered to keep it in effect till 2025. What is this deduction? Most rental property owners believe that this is a rental deduction while it is not. This pass-through tax deduction is an individual income tax deduction, which largely depends on the landlord's income. The landlords can deduct up to 20% of their rental income or 2.5% of the entire initial cost of the rental property added to the 25% of the amount paid to their workers.
Travel Related to Rental Properties
Yes, you can get tax deductions even for traveling! Sounds crazy, right? Well, we are not talking about the #wanderlust but addressing the travel you have to do to meet a new tenant or any complaints made by them. You also have to travel in case you need to purchase something for the rental property you own. Whenever you have to make these short or long travels, you should make sure that all travel expenses are deducted.
Again, the travel expenses incurred to 'improve' the rental property cannot be deducted. However, you can add the 'improvement travel' expenses to the property's tax basis, and it will come back to you through depreciation. You can deduct your airfare, hotel bills, meals, and other essential expenses.
Well, it's never too late to start saving more money. Now that you know where and how you can make the most of tax deductions, you are only going to improve your profit margin and generate more revenue to make your investment more valuable.
This content is designed to convey information only. Any information here is not intended to provide legal or financial advice and should not be taken as such. Consider obtaining professional advice from your licensed professional about any decision or contemplated course of action.
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