Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but it doesn’t mean you can deduct every cost you incur. There are some expenses that you cannot legally claim. What’s more, under the 2017 Tax Cuts and Jobs Act, they have made edits to what can be considered as deductions for rental property owners. Because of these adjustments, you may or may not have to maintain a record for certain expenses, especially those that are no longer allowed. When you know which tax deductions you cannot use as a Stockbridge rental property owner, you can simplify your income tax return preparation.
The first rule on deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. This is something you ought to know. To illustrate, say you hired an electrician to repair your water heater in December 2019 but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repairs on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This pertains to the payment made toward the loan principal and not your mortgage interest and property taxes. The latter two remain deductibles.
- Entertainment expenses, even though it’s related to your business. However, there is an exception. Business meals are still deductible, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Any gift below $25 is fine.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the intention of making these expenses is for the business.
- Capital improvements, such as replacing broken windows or adding a new car garage to your rental house. These costs can still be placed in your tax returns in some way. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These would better be included on your personal income tax return instead.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions. You cannot deduct expenses spent on lobbying costs or campaign events.
- Home office space. There is an exception, though. And that is if you use that space exclusively for business purposes. Even by putting a family computer in the room, it may mean that your home office deduction will be disallowed.
In the end, income tax deductions are difficult to understand. They are complicated and are subject to change. While a tax professional is still the best resource for any tax-related issues and questions, there are still a lot of things you can do to maximize both your time and profit. When you get Real Property Management Anchor to work with you, we will assist you through the disorienting haze of tax deductions so that you will never have to be unclear and unsure of whether or not you’re keeping track of the right items.
Our team of Stockbridge property managers can provide you with the support you need to ensure that each potential tax deduction is taken while deleting any disallowed items that might lead to problems with the IRS. With our assistance, you will feel what it means to be set up for success— both during tax season as well as throughout the year. Don’t hesitate to contact us online or give us a ring at 770-506-1237 for more information.
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