Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but you can’t just deduct every payment you make. There are some things you cannot legally claim. What’s more, there have been recent changes to what can be considered deductions for rental property owners under the 2017 Tax Cuts and Jobs Act. These modifications mean that you may or may not need to keep a record for certain expenses, especially those that have been disallowed. Learning what Council Bluffs rental property owners can or cannot claim as tax deductions can greatly simplify your income tax return preparation.
The first rule you should be aware of about deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. A good example would be when you hire someone to inspect and repair the electric wiring in your house on December 2019 but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repairs on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This relates to any payment made toward the loan principal. These are not deductible. Your mortgage interests and property taxes, however, remain deductibles.
- Entertainment expenses, irrespective of how it’s related to the business. However, you can still deduct business meals, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Gifts below $25 are okay.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the goal of making these payments is to help the business.
- Capital improvements, like buying new windows to replace your old ones or building a swimming pool on your rental property. These costs don’t go to waste, though. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These have to be included on 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. Any expense on lobbying costs or campaign events is not allowed.
- Home office space, with the exception of having that space used exclusively for business purposes. It has to be really exclusive. That means if you place a family computer in the room, it may mean that your home office deduction is disallowed.
In the final analysis, income tax deductions are a complicated matter, changing over time and difficult to understand. While tax-related issues and questions are best given to tax professionals, there are things related to tax that you can do to maximize your time and profit. When you work with Real Property Management Legacy, we will assist you and guide you through the confusing maze of tax deductions so you will never have to wonder whether you are keeping track of the right items.
Our team of Council Bluffs property managers can provide you with the support you need to ensure that each potential tax deduction is taken while taking away any disallowed items that might lead to problems with the IRS. With our help, you will feel the confidence of being ready for success— both during tax season as well as throughout the year. Feel free to contact us online or by phone at 402-983-8365. We’ll be glad to answer any of your questions.
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