With tax season upon us, landlords will be reporting to the IRS all rental income received which includes: standard rent payments, advanced rent payments, services received as rent, tenant paid expenses, tenant penalty payment for canceling lease, security deposit, etc.
2020 was a rough year for many landlords amongst the statewide COVID-19 eviction moratorium. Because of this, it’s more important now than ever for landlords to save all that they can on their taxes.
- Tax deductions for landlords.
- Depreciation for rental property – Landlords are allowed to deduct a portion of the total cost of their property over several years.
- Insurance – You may be able to deduct your insurance premiums on the property.
- Repairs – As a landlord you can deduct the repair expenses on the property as long as they are reasonable and necessary. So next time you’re thinking about fixing it yourself, think about the cost of your time. You cannot deduct for your time spent repairing things but you can deduct the costs for the handyman, plumber, etc.
2. COVID Resources
The latest COVID-19 relief package included $25 Billion in rental assistance for landlords. Benefits.gov provides the resources offered and includes helpful articles and webinars.
It’s important to keep accurate records on your income property, especially when claiming deductions. Always keep a copy of: lease agreements, any/all legal documents, any permits, insurance policies, loan documents, previous tax records, real estate documents, and any other records that pertain to that entity. Costs you will want to keep record of include: advertising/listing costs, mortgage interest, business credit cards, professional fees (property management fees, lawyers, etc.), repair invoices, rent payment receipts, any utilities costs (if applicable).
4. Tax Cuts and Jobs Act
Fortunately, many of the changes implemented by the Tax Cuts and Jobs Act (TCJA) are advantageous for landlords. For example, individual tax rates are lower, there’s a new pass through deduction (up to 20 percent of net rental income), and section 179 allows rental business owners to deduct the cost of personal property used for business.