Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but it doesn’t mean that every expense can be used to lower your tax. There are some things that you cannot legally claim as expenses. What’s more, under the 2017 Tax Cuts and Jobs Act, they have made edits to what can be considered as deductions for rental property owners. These adjustments mean that you may or may not have to keep tabs on certain expenses, especially those that have been taken off the list. Familiarizing yourself which tax deductions you can and cannot claim as an Addison rental property owner can really simplify your income tax return preparation.
You have to know the first rule when deducting expenses: 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. It doesn’t matter if the entertainment purchased is related to your business. However, business meals are still an allowed deductible, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Anything that doesn’t go over $25 is fine.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the intention of making these expenses is for the business.
- Capital improvement like replacing old doors or installing a new roof on your rental house. These costs can still help you with your tax. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These would better be included on your personal income tax return instead.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions. Anything you spend on lobbying costs or campaign events cannot be declared as a deduction.
- Home office space, unless you use that space exclusively for business purposes. It should be truly exclusive. That means that shared equipment— like a family computer— may mean that your home office deduction is disallowed.
In the end, income tax deductions are difficult to understand. They are complicated and are subject to change. While a tax professional is the best person to contact for advice on tax-related issues and questions, there are still many things you can do to maximize both your time and your profit. When you hire Real Property Management Legend, we will assist you in navigating through the confusing maze that is tax deductions. You will never have to doubt yourself whether or not you’re keeping track of the right items.
Our team of Addison property managers can provide you with the support you need to ensure that each potential tax deduction is taken while deleting any disallowed items that might lead to problems with the IRS. With our help, you will know what it’s like to be ready for success both during tax season as well as throughout the year. Feel free to contact us online or by phone at 214-227-2404. We’ll be glad to answer any of your questions.
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