As a landlord, the satisfaction and excitement of consistent income are things that should be expected. However, one of the topics that is normally not mentioned during the conversation is the rental property tax deductions. Whether you are just starting your real estate investments, or are now an experienced landlord, it is crucial that you fully comprehend your taxes. Not only is it important to know what you need to pay, but also what you don’t have to pay. There are plenty of expenses that are eligible for tax deductions in Chicago that you might not be aware of.
The IRS clearly states the deductions a property owner can take. To start with, the expenses you may deduct on your tax return include "mortgage interest, property tax, operating expenses, depreciation, and repairs" But, what else?
Take a look at the most common tax deductions that are overlooked by landlords.
Maintenance and Repairs
The tax code does allow landlords to deduct a certain amount of repairs and maintenance (separate from home improvements which are deductible through depreciation). The main difference is that you will be doing maintenance to upkeep the property for rentals, not to increase the value significantly (like adding a complete new floor to your property). Maintenance and repair items would be like painting, plumbing, landscaping, pest control and every day issues that may arise.
Travel expenses when looking for new property
If you are or are planning to be a landlord with multiple properties, your transportation expenses are deductible. The costs of your hotel, airfare, rental car, meals and other travel expenses are covered (only if ordinary and necessary). In order to be eligible, at least half of the time you spend away must have been spent doing business.
Office Space
It doesn’t matter if you work from home, or a commercial building, you most likely can write this space off (or a portion of it).
Utilities
If as a landlord, you are in charge of paying the utilities, the charges of water, sewer, gas, trash collection, internet, etc., then these expenses are most likely deductible. If your tenant reimburses you later, don't forget to file those reimbursements as income.
The list continues: you can also deduct HOA dues, legal fees for an eviction, employees, rent for equipment and tools, internet and cell phone plans, meals and entertainment and advertising expenses. As a property manager, we highly recommend you either know the taxes throughly or hire a professional that will guide you through this hectic process.
The most important thing is to keep an excellent record of your expenses. Not only will this help you monitor the progress of your rental property but it will help you keep in track the deductible expenses. Doing this will help you be better prepared for tax returns. Also, don't throw away your receipts, canceled checks or bills! They may serve as evidence in the future!
Keep in mind that at Landmark Property Management, we are property managers, NOT tax professionals. This article is food for thought, NOT tax or legal advice. Please do your own due diligence by reaching out to a qualified CPA or tax professional. A great start would be to check out the IRS website and read the basics on Real Estate Income, Deductions, and Record Keeping (link below). If you need a referral for a good CPA or tax professional, please reach out to us! You can contact us at:
Landmark Property Management
312-313-8553
Tips on Real Estate Income, Deductions, and Record Keeping
