One of the best moves you can make as a landlord is keeping detailed records of your expenses to reduce the tax liability on rent income. Of course, depreciation is a significant expense. Even before a property exceeds the 27.5 year depreciation period, you want to use all the expenses you incur to advertise, lease, manage, clean, repair and maintain the rental property.
Insurance, taxes, utilities, mortgage interest and homeowner association fees are the big ones, but little ones add up into more big ones. It’s not much effort to keep a notebook or small paper calendar in each of your vehicles to record mileage every time you visit the property, pick up supplies like air filters from a home improvement store or meet prospective tenants off-site. For a rental unit 10 miles from your home, for example, that you go to twice a month for any reason (rent, repair, cleaning, showing, painting), that 480 miles at the 2020 business mileage rate of 57.5 cents per mile gives you another $276 expense.
Tenant-Landlord Documents are Expenses
Tenants must be able to reach a landlord or property manager 24/7 in case of an emergency, so having a cell phone is part of your business. The useful documents like state specific landlord-tenant forms, rental application forms, comprehensive move-in or out walk-through checklists, leases and addendums found at ezLandlordForms.com are legitimate expenses. Since you cannot deduct your time for drafting rental agreements and trying to think of all the angles to include in the paperwork, using ezLandlordForms saves you from reinventing the wheel. They are the professionals who have been there done this many times over, so take advantage of their expertise and time savings to purchase all the forms you need. Since you need a printer to print them, consider your office equipment a business expense, including financial software like QuickBooks.
Professional and Legal Expenses
Professional and legal fees can be deducted, like accounting services and legal advice or mediation costs. Remember to record and save receipts for checks and checking account fees, plus anything you stock at the property like paint for touch-up and specialty or general cleaning supplies such as glass cooktop cleaner, to encourage tenants to keep these cooktops in good condition. It’s not a bad idea to include a vacuum cleaner and vacuum cleaner bags at the property. If lawn maintenance is the tenant’s responsibility, landlords often supply the lawn mower and other tools and equipment.
Repair vs. Improvement
Repair technicians are an expense, of course. But if you are a DIY kind of landlord or manager, you may not recover your time, but travel mileage, tools, nuts, bolts, replacement parts, cleansers, WD-40, paper towels, duct tape, light bulbs and whatever you need to get the job done can be expensed.
While repairs to restore an appliance or the property to good working condition are deductible, capital improvements which essentially increase the value of the property are taken through depreciation across several years. One of the best ways to minimize repairs costs, which, though you can deduct them, still cost you out-of-pocket money, is to lease an apartment, condo, townhouse, single family dwelling or duplex to reliable people. The ezLandlordForms’ folks offer complete tenant screening services – at a very reasonable cost which is another deductible expense – to sift through things like credit reports, eviction history and more. Extensive, thoughtful forms for all your tenant-landlord documentation can be found at an incredible savings in time – and potential exasperation – on your part.
There are some red flags alongside legitimate rental property expenses, and one is that renting to family or friends could cost you all the expenses. There are tax rules on deducting losses and renting vacation homes for which you need legal counsel or wise accounting advice. While some landlords dedicate a small office space at home for a deduction, be forewarned that when you sell your house, you may well be assessed capital gains on this business portion of your home by the square foot.
As always with anything legal, tax-related and accounting-based, check with professionals in your area to guide you along the best path for the best outcome in recording your rent income and all the legitimate expenses you incur to reduce that taxable bottom line.