Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns. The reverse is also true, that there are some expenses you cannot legally claim in your tax returns. What’s more, under the 2017 Tax Cuts and Jobs Act, deductions for rental property owners have undergone changes recently. Because of these adjustments, you may or may not have to maintain a record for certain expenses, especially those that are no longer allowed. Learning what Christiansburg rental property owners can or cannot claim as tax deductions can greatly simplify your income tax return preparation.
You need to know the first rule on deducting expenses, that you cannot deduct expenses you didn’t actually pay during the tax year. One example is hiring someone to repair a broken window pane in December 2019 but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repair on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This pertains to the payment made toward the loan principal and not your mortgage interest and property taxes. The latter two remain deductibles.
- Entertainment expenses, even if the expense is connected to your business. However, there is an exception. Business meals are still deductible, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Any gift below $25 is fine.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the purpose of these expenses is for the growth of the business.
- Capital improvements, such as replacing broken windows or adding a new car garage to your rental house. These costs can still be placed in your tax returns in some way. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These costs should instead be used 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. Lobbying costs or campaign events aren’t classified as approved deductibles.
- Home office space, with the exception of having that space used exclusively for business purposes. Even by putting a family computer in the room, it may mean that your home office deduction will be disallowed.
In the final analysis, income tax deductions are a complicated matter, changing over time and difficult to understand. While the best source of advice on tax-related issues and questions is a tax professional, there are things you do, which are related to tax, that can maximize both your time and profit. When you work with Real Property Management Insight, 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 Christiansburg property managers can provide you with the support you need to ensure that each potential tax deduction is taken while staying away from 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. If you want more information, don’t hesitate to contact us online or call us at 540-998-6917.
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