Although it can help you save a lot, being a landlord is a tedious job. You must also manage your finances and take care of your living space. This includes finding tenants, paying a mortgage, securing insurance, and paying property taxes. Your personal tax situation can be complicated by renting a house. Uncle Sam allows you the ability to deduct expenses related to renting a property. According to the IRS, deductible expenses must be normal and accepted by the rental company. They also have to be necessary for the management and maintenance of the property. You can also consult a financial advisor to help you manage the tax and financial consequences of real estate.

Calculating Your Mortgage Interest

To purchase their home, most homeowners use a mortgage. The same applies to rental properties. The largest deduction for landlords who have a mortgage is the loan interest. You cannot deduct the amount of your mortgage payment that goes towards the principal loan amount. The deduction is only for interest payments. These components will appear on your monthly statement separately and are easy to find. To get your annual total interest, multiply the monthly amount by 12.

You can also deduct the mortgage interest and origination fees, points, and interest on unsecured loans used to improve your rental property. To qualify for tax relief, you must have spent money on the purchases. It can be difficult to know what is included and how to file extra interest charges. Consider consulting a financial advisor.

How to Deduct Your Property Taxes

Property taxes are collected by almost every state and local government. They can vary depending on the location of your rental property. Check your escrow summary to find out the exact tax rate for your area or contact your tax professional. You can also deduct the rental license fees and any associated landlord fees if your state has them.

The IRS restricts the deduction of state income and local income to $10,000 (or $5,000 for married taxpayers who file separate returns). This means that you can't deduct any state or local taxes above this limit.

Your state, city, county, or town might charge an occupancy tax if you manage short-term rentals. You can also deduct occupancy taxes, which are very similar to sales tax. You can also deduct sales tax for business-related items like wages and social safety taxes for employees.

How to Deduct Your Insurance Premiums

Lenders may require homeowners to have insurance before they can secure their mortgage. Any type of insurance can be deducted as it is considered an expense for a rental property that is ordinary and necessary. This applies to both basic homeowners insurance and special peril or liability insurance.

Employers can also deduct the cost for workers' and health insurance. This can offset the fact that rental insurance premiums are a little higher. Landlords can deduct losses from their rental properties, including those due to hurricanes, earthquakes, and floods.

Calculating Your Home's Depreciation

The value of your rental property, and its contents, will decrease over time due to wear and tear, and obsolescence. Depreciation is a tax-deductible process. Depreciation can be claimed as soon as the apartment or home is available for rent. You can claim the deduction for the expected property life, but you must spread it over many years. (Remember that the IRS states that rental properties can depreciate in excess of 27.5 years. Remember that while the structure's value can decrease, it cannot depreciate the land.

The value of equipment you use to run your rental business such as your automobile or computer, as well any improvements that you make to the property that increases its value, adapt its use, or prolong its life, can be claimed. You could do this by installing a new roof or adding furniture, or even updating household appliances. It must last more than one year, be useful to your rental business, and not lose its value over time to qualify as deductible expenditure. IRS Publication 956, "How to depreciate property," can help you navigate this complicated process.

How to Deduct Maintenance and Repairs

Home improvements are not deductible by depreciation. However, the tax code allows you to deduct certain maintenance and repair costs separately. These efforts maintain your property's rentability, but they do not increase its value. According to the IRS, improvements can include adding bedrooms, bathrooms, decks, and garages to your property, landscaping, heating and cooling, plumbing, insulation, and interior upgrades like kitchens, built-in appliances, and wall-to-wall flooring.

You can deduct labor costs if you hire someone to do the job. If you hire one, the same applies to property and on-site managers. You can deduct rental fees for tools or equipment if you go the DIY route. The same principle applies to condo and homeowner association fees.

Calculating Your Utilities

Each landlord approaches utilities differently. You can deduct taxes if you cover utilities such as gas, electricity, and water for your tenant. You can also deduct the cost of internet, cable, or satellite if you have paid for them. Even if the tenant later agrees to pay you, you can still file the rental property deduction. You can also claim income reimbursement.

How to Deduct Your Professional and Legal Fees

Certain professional fees can be deducted by landlords in relation to a rental property. You can deduct any professional fees incurred by a CPA or computer program to prepare your tax returns.

A lawyer can be hired to handle rental paperwork at any time of the year. These exorbitant hourly charges can be deducted. To find tenants, use a real estate agent. The commission is deducted. Advertise the property online, in the newspaper, or on the radio. These ad dollars can be deducted.

Advisor services are eligible for deduction as long as the meeting is to discuss the rental property. This deduction can be used to pay court and legal filing fees if you have to expel someone.

All of these are operating expenses and should be deducted. However, legal fees incurred to protect your property's title or to recover and improve it cannot be deducted.

Calculating Your Travel and Transportation

Your transportation expenses can be deducted if you are a landlord who travels to several properties or your rental is far from your home. This applies to your expenses for showing your rental property, collecting rental income, and maintaining your rental property throughout the year. This policy does not cover reasonable commutes that are made frequently.

Two methods are available to deduct travel expenses: actual expenses and the standard mileage rate. The standard mileage rate for business use in 2020 was 57.5c per mile.

How To Deduct Your Office Space

You can deduct any associated costs, regardless of whether you are operating your business in a commercial building or a spare bedroom. The largest expenses will be square footage and rental costs. You can include the cost of a printer and computer software, as well as any other expenses.

Keep track of all purchases and keep records about the time spent managing your rental property. This is one of the most common deductions. Be honest with yourself about the difference between personal and business use.

How Do I Claim Rental Property Tax Deductions

You should file your rental property tax deductions in the same year that you pay expenses using a Schedule E form. It will make the process easier if you keep track of all income and expenses related to the property. If you are ever audited, all deductions you claim will need to be supported.

We've covered several deductions for rental property taxes. However, it is more difficult to file if the rental property is your primary residence during a tax year. The Schedule E form for each year denotes how many days you can use your home, and how often the property can be rented at fair market value. Most cases won't allow you to deduct losses or expenses for personal use. However, you may be able file them using a Schedule A form if your deductions are itemized.