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It's common for landlords to pay too much in taxes each year. Leaving out important deductions can cost you money when it comes to tax time. We've covered many of the most common deductions to remember as you prepare your taxes.
From mortgage interest to professional fees, landlords benefit from a lot of rental property deductions.
What about some of the less obvious deductions? There are also some tricky items that you should not deduct. Some overlooked items can put your business at risk if you fail to report them as rental property income.
Let's make sure you don't forget anything—large or small—when it comes to completing your taxes for property management in Jacksonville, FL.
Deduct Appliance Purchases and Repairs
Did you upgrade the appliances in your rental property last year? Whether it was a planned upgrade or an emergency refrigerator replacement, those new appliances are tax deductible.
When deducting the cost of appliances, the IRS considers an appliance to be an asset—not an expense.
For expenses related to operating your rental property business, deduct the full amount in that tax year. When it comes to assets (like appliances), you can apply the deduction based on depreciation.
You'll be able to deduct a portion of the cost of that new refrigerator over several years.
However, if you have costs related to repairing an appliance, those costs can be deducted in full as an expense in the same tax year.
Deduct Start-up Costs
When you buy a new rental property, keep track of any expenses for "starting" that property.
These include costs for marketing and advertising, appraisals, inspections, and repairs.
Are you providing a furnished home? Deduct costs for furniture and appliances.
Be sure you keep in mind what we mentioned above. Costs for furniture and appliances will likely fall under "assets." Deduct a depreciated value for these kinds of start-up costs.
Free or Exchanged Labor Is Income
Aside from rental payment income, it's critical to include other types of income when reporting your earnings for the year.
Did you have a friend or contractor provide a service for your rental property as a favor? Did a contractor or partner company add wheelchair accessibility or a security system to your property as a gift?
You might need to include these free services or additions to your property as income.
Estimate the amount of income based on the fair market value of the services or property you received on behalf of your rental property.
What You Cannot Deduct
While there is plenty you can deduct on your taxes as a landlord, don't get too deduction-happy. There are a few rental property items that you should not try to deduct unless you want to risk an audit.
You can deduct costs for labor done on your properties or in connection with your rental property business, but landlords cannot deduct their own labor costs.
It doesn't always pay to save money trying to do property repairs or maintenance yourself. When you use a contractor or partner with a property management company, you can deduct the expense of paying someone else to do the work on your property.
If you used your rental property for personal use at any time during the year, you cannot deduct expenses that took place during that time. Utilities or maintenance costs were incurred for your personal use—not for tenants—while you live in the home.
If you have a rental attached to your personal property, prorate expenses that cover both your personal property and the rental portion of the property. For instance, if your yard maintenance contractor maintains a shared lawn space between your personal property and your rental property, claim only a portion of those costs as a rental property deduction.
What About Security Deposits?
Monthly rental payments are income. However, at the time you collect a security deposit, it's not considered income.
Security deposit money is intended to return to a tenant at the end of their lease. If you refund the deposit in full, there's nothing in your pocket to deduct.
If you hold any of the deposit back for repairs or damages, you should consider that amount as income for tax purposes. Include the amount you keep as part of your income in the year that you keep that retained amount.
Don't Miss Anything!
When you're a landlord, you risk paying more in taxes—or an audit—if you overlook anything when reporting your rental property taxes each year.
From income disguised as a gift to knowing how to handle security deposits, it's worth it to get professional help when considering deductions and income for property management in Jacksonville, FL.
Start with knowing exactly how much your property is worth. Paying too much—or not enough—in taxes based on your property value can hurt your long-term your success as a landlord.
If you have a new property or you haven't check your property value in a while, get a FREE Rental Analysis from Green River Property Management!