There are various key tax deductions for rental property owners that you should be aware of to lower your taxable income and enhance your profitability. In general, tax deductions are claimed for the tax year in which the expenses were incurred. It is critical to get the advice of a tax professional or accountant to ensure that you understand the exact rules and requirements for each deduction and that you maximize your benefits within the legal framework.
Nondeductible expenses
Alternatively, non-allowable tax deductions are costs that cannot be deducted to lower taxable income. Personal expenses unrelated to the rental property, such as personal trips, clothing, or groceries, are examples; as well as:
- Monthly mortgage payments. While mortgage interest and property taxes are both deductible, loan principal payments are not.
- Even when the entertainment is connected to your business, entertainment costs are not deductible. Business dinners, on the other hand, are still deductible, though the restrictions have changed under the new rule.
- Business gifts valued over $25 and given to any one person during the tax year are not deductible.
- Club dues, such as subscriptions to gyms, country clubs, or other clubs, are not deductible even if you are entertaining for business purposes.
- Capital improvement costs such as installing new windows or a new roof on your rental house, must be depreciated not deducted.
- Other taxes, including state income taxes and local sales tax. These should be included in your personal income tax return.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions, including anything spent on lobbying costs or campaign events.
- Home office space unless it is used exclusively for business purposes. Even having a family computer in the room may mean that your home office deduction is disallowed.
Understanding income tax deductions can be challenging due to their complexity. To make the most of your time and earnings, it’s recommended to seek assistance from a tax professional for any tax-related difficulties or questions. However, there are certain steps you can take to optimize your tax situation. Real Property Management Titan provides guidance on tax deductions to ensure that you keep track of the proper items without any confusion.
The Franklin property managers on our team can assist you in maximizing your tax deductions while avoiding any disallowed items that could result in issues with the IRS. Our assistance can help you prepare for tax season and maintain financial success throughout the year, giving you confidence in your financial planning. To obtain more information, you can either contact us online or call us at 615.538.7711.
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