Owning a rental property can be complicated and pricey. The good news is, unlike being a standard homeowner, there are tax deductions when owning a rental property. We always recommend that you hire a Philadelphia property management company or tax advisor to assist with adequately deducting these items. Learn more about what things are deductible as a landlord; what records you must keep claiming these deductions.
7 Tax Write-Offs for Philadelphia Rental Properties
There are many different tax deductions for your rental property. As a landlord, you’ll want to maximize your deductions to increase your ROI. Also, check your state and local tax codes and consult with your accountant or property manager for a comprehensive list of eligible deductions. Some common tax deductions for landlords include:
- Maintenance and Repairs: A landlord can deduct any maintenance and repairs throughout the year that needed to occur on the property. These items may include; fixes to appliances, HVAC repairs, carpet repairs after a unit turnover, and more.
- Loan Interest: Loan interest is deductible for landlords but not typical homeowners. When filling out tax forms, you may include the amount you paid in that year for the mortgage loan interest for your rental property.
- Depreciation: You may only deduct the depreciation of the property, not the land it sits on. With that said, a landlord can deduct the costs of improving a home due to depreciation. On average, homes depreciate at about 3.6% each year for 27.5 years, according to Investopedia.
- Office and Travel: Deduct for home office or office rental space. Also, travel expenses that may occur to handle lease signings, etc. as an out of town landlord can be tax-deductible as well.
- Employees and Contractors: As a landlord, you likely have some employees working with you, like leasing staff, property manager, or contractors. Contracted employees may include cleaners, maintenance staff, painters, and workers for other outsourced projects to fix issues or maintain property value.
- Legal Services: Legal services are also a deduction. These may include real estate attorneys for lease drafting and eviction attorneys.
- Pass-through Deduction: This applies to self-employed landlords, which most are. Under pass-through deduction, small business owners may deduct up to 20% of their business profit annually. This is deducting your income taxes.
Record Keeping for Landlords
You can’t deduct items without proof. It’s imperative to keep well-documented receipts and contracts for transactions. The better organized you are as a landlord, and the more records that you save, the better your chances will be for receiving the requested deductions. These records will include:
- Payment to contractors, maintenance services
- Employee salaries/payroll
- Rental income
- Legal contracts
- Any other related paperwork according to the deductions listed above
How to Claim Tax Deductions for Your Rental Property
To claim these rental property deductions, you will have to fill out a Schedule E form when completing taxes. You will also be prompted to submit proof of each transaction. Taxes get complicated when owning and operating a small business. We do not recommend doing them on your own like you would with personal income taxes (W2 if a company employed you). You are a small business owner as a landlord and want everything to be in place to get a maximum refund, but also to avoid auditing or other issues.
With that said, it’s advisable to seek a Tax Specialist or Financial Advisor to go over these forms with you and help you stay organized each year. Another option is to go with a property management company. Hiring a property management company will ensure that you have access to financial staff to help with taxes and other finances, as well as help with leasing and maintenance.
Tips for Maintaining Property Finances
Apart from taxes, there are a lot of other financial responsibilities that you have as a landlord. These may include paying staff, collecting rent and late fees, dealing with vacancy costs, and maintaining well-run and safe properties. Keep in mind the following tips for managing your rental property’s finances:
- Budget: Create a budget and stick to it. A budget will include what you can afford for your rental property each year, half-year, and quarterly depending on how you organize it. Some items to include in your budget are maintenance costs, marketing and advertising, salaries for direct staff members, property fees and mortgage interest, and more.
- Minimize Vacancies: Minimizing vacancies is essential to have a stable income as a landlord. When a property sits vacant, you still have to pay the mortgage and interest, as well as utilities and additional costs out-of-pocket.
- Record Keeping: Again, we can’t reiterate how important it is to keep good records of financial transactions! These transactions will include monthly rent roll, maintenance costs, office and travel costs, and virtually any cost that has to do with your property.
- Hire a Property Manager: We always recommend looking into hiring a financial advisor or property management team. Falling behind with finances is not hard to do, especially as a new landlord. Hiring a team to help will ensure you stay both financially stable and your properties are well-run, maintained, and safe. Doing so will ultimately minimize other issues that may come up and cost you financially.
If you’re a landlord in need of guidance on tax deductions for your rental property, contact our team at Bay Property Management Group Philadelphia. We offer full-service property management services including marketing, tenant placement, rent collection, and eviction services. Our in-house accounting team provides monthly income statements as well as end-of-year tax documents to make your taxes a breeze.