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5 Investment Property Tax Deductions You Won't Want to Miss

No one enjoys paying taxes, but there are required taxes on investment properties. Luckily, there are many tax deductions available to help landlords save on their tax bill. Every landlord should explore these 7 investment property tax deductions.
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Taxes might be the least enjoyable part of owning an investment property. All landlords are responsible for paying taxes on their properties at least once a year. While paying taxes is never fun, many landlords may actually be overpaying the government. That’s because there are several tax deductions available to anyone who owns investment properties.

In fact, real estate rentals have more tax breaks than nearly all other investments and exploring these deductions can often mean the difference between breaking even and earning a profit. If you own rental property, here at the top 7 tax deductions you need to be aware of this year.

1. Interest Deductions

Almost all landlords pay some type of interest, whether it’s on their mortgage, on refinancing loans, or on credit cards used to pay for property repairs or renovations. Landlords can report and deduct all of the interest paid on any type of financing used for their rental properties.

As of 2018, this deduction applies to all landlords who earn less than $25 million from their rentals. Anyone who earns over this amount is limited in how much they can deduct.

2. Depreciation

You can’t claim a deduction for the full price of the investment you bought, but you will get this amount back slowly, through depreciation. Rental properties depreciate over 27.5 years and each year a percentage is deducted. While there are many methods for coming up with the depreciation percentage, the most straightforward method is to deduct 1/27 every year.

You can learn more about other methods for calculating depreciation on your rental property here.

3. Repair Deductions

Throughout the year, landlords are likely to spend money on repairs. From fixing broken HVAC systems to repainting, any repair made to return the investment property to its normal state can be deducted on a landlord’s taxes.

Keep in mind, repairs refer to any fix being made to something that is broken or not working properly. Improvements and renovation costs are not deductible.

4. Travel Deductions

Any time a landlord travels to their rental property to answer tenant requests or to meet handymen and repair companies, the expense is tax deductible. Likewise, if you need to travel to the store to purchase supplies for repair, the expense is also deductible. However, travel made to renovate or improve the property is not tax deductible.

These deductions can be made in two different ways by:

  • Deducting total expenses (gas, vehicle upkeep, and repairs, etc) or
  • With the IRS standard mileage rate (as found on their website)

If your rental property is not nearby and you must travel by plane or train, you can deduct your travel costs, as well as hotel bills and meals. When claiming any travel deductions, you’ll want to be sure you have organized records or receipts of your expenses.

5. Home Office Deduction

Any landlord who conducts their business in a home office or workspace can deduct home office expenses on their taxes. There are a few requirements that must be met, such as ensuring this office space is only used for managing your business.

6. Pass-Through Deduction

This new deduction was just initiated in 2018, allowing landlords to deduct either 20% of their net rental income or 2.5% of the original cost of their investment, as well as 25% of the salary paid to their employees. Landlords’ income factors into whether or not they’re eligible for either deduction.

7. Insurance Deduction

Landlords can deduct the premiums paid for rental insurance, like fire, flood, theft, and landlord liability insurance. Health insurance premiums and workers’ compensation for employees can also be deducted.

Summary

While all landlords must pay taxes on their rental investment properties, there are many deductions they may be eligible for to help minimize the amount owed. Be sure to keep good financial records and copies of your receipts to ensure all of your deductible expenses are reported.

If you’re looking to break into property investing or searching for your next rental property, you’ll want to partner with a top-rated real estate agent. Clever can help connect you with an excellent local agent with experience in rental investment properties.

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Luke Babich
Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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