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  5. Rental Property Deductions You Can Take at Tax Time

Rental Property Deductions You Can Take at Tax Time

Updated for Tax Year 2022 • December 1, 2022 08:24 AM


OVERVIEW

Rental property often offers larger deductions and tax benefits than most investments. Many of these are overlooked by landlords at tax time. This can make a difference in making a profit or losing money on your real estate venture. If you own a rental property, the IRS allows you to deduct expenses you pay for the upkeep and maintenance of the property, conserving and managing the property, and other expenses deemed necessary and associated with property rental.


Rental property deductions

Employees and independent contractors

Landlords can deduct wages and salaries for employees, such as for residential managers and staff grounds maintenance workers. Other tax-deductible services that can be used as deductions are independent contractors, such as:

  • Carpenters, electricians and plumbers;
  • Architects, landscapers and gardeners;
  • Roofers, carpet-layers and painters.

Its typically best to request that they provide you with a completed W-9 form before they start doing any work for you. Keep each contractor’s completed W-9 form, especially if they are unincorporated, and submit the amount you paid them on IRS Form 1099-MISC. If you paid the contractor less than $600 over the course of the year, this form is not required. However, you are still allowed to deduct the expense.

Deductible expenses for rental property

A landlord is allowed to deduct any reasonable expenses used in the conduct, maintenance and managing of her rental properties. That includes:

  • Utilities
  • Taxes
  • Necessary and reasonable repairs to the property
  • Travel costs incurred while doing business

Expenses that are sometimes overlooked, according to David Ayoub, CPA in Syracuse, N.Y., are meal expenses for employees. “In most years,  you can only deduct 50 percent of meal expenses incurred while doing business with potential clients or business associates. However, if you throw a Christmas party or a summer picnic for your staff, it’s generally 100 percent deductible.” For tax years 2021 and 2022 only, you can deduct the full cost of business-related food and beverages purchased from a restaurant.

Accidental landlords

It’s not unusual for someone to become a landlord out of circumstantial necessity.

“You see people moving out of town or state to go to a better job. If they can’t sell their house, they rent it,” Ayoub notes. “If you rent your home for more than three years out of five, and then sell it, the capital gain is taxable.

However, if you sell it while you still meet the two-of-the-last-five-years test then you can typically exclude a significant portion, if not all, of your profit. You’re also entitled to the same deductions as any other landlords. As with any rental property, make sure you have landlord insurance on your home. It’s deductible as an expense, too.”

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