Can You Deduct Property Taxes? Tax Tips for Property Owners

Property Management

Owning property that can make you money even when you are sleeping is part of the American dream. To make some good return landlords look to cut costs in any area that they reasonably can. Many therefore ask, “can you deduct property taxes?” The answer to that is yes. The IRS encourages rental property investment through a series of expenses that are deductible from your tax bill as a landlord. Before a landlord begins the process of claiming any deductions, they should have impeccable records. The IRS will go through any records relating to the claims with a fine-tooth comb. If you cannot successfully demonstrate how valid the expenses related to your rental are, you will get fined.

can you deduct property taxes

 

The result will be you paying the due amount with interest. It is, therefore, good practice to make sure that you set up a record keeping system related to your rental property. The emphasis of this system should be on capturing expense information as soon as it comes in. Once you have your records together, you can go ahead and look at some ways in which you can save on taxes.

1. Repairs

Any activity done to keep the property in its current state constitutes a repair. The costs associated with carrying out repairs to any rental property is fully deductible in the year it is incurred. To qualify it has to be viewed as reasonable in amount, necessary and ordinary. Examples of repairs that fit this bill include:

  • Fixing the gutters.
  • Replacement of broken windows.
  • Repainting.
  • Patching spots.
  • Repairing the floor.
  • Fixing any leaks.
  • Repairing the air conditioning system.
  • Any money paid to hire tools or equipment associated with the repair.
  • Any money paid to laborers or contractors for repairs.
  • Fixing the plumbing.

2. Insurance Premiums

Any business-related premium is as tax-deductible, and the same thing applies to rental property. Some examples include:

  • General liability insurance.
  • Theft insurance.
  • Workers’compensation.
  • Fire/liability/damage insurance.
  • Mortgage insurance premiums.
  • Homeowners insurance.
  • Personal umbrella insurance.

If you’re wondering whether a particular insurance premium type is a business-related, ask yourself this question. Would you still purchase it if you didn’t own the rental property? That will help you assess what a relevant business-related insurance premium is.

3. Professional Fees

When dealing with transactions about your rental property, you will need to pay lawyers, accountants, and other professionals. These can include property managers in Campbell who you’ll need to consult to answer the question ” adequately can you deduct property taxes?” The fees they charge you are deductible as long as it is related to your rental property.

4. Utility Expenses

Whatever service cost you incur on your rental property can be claimed a tax deduction. If the tenant does reimburse you later, you can still claim it as a deductible. However, note that you would have to declare the reimbursement as income. Examples include:

  • Gas.
  • Electricity.
  • Water and sewer.
  • Recycling and trash.
  • Heating and oil.

5. Advertising Expenses

Any costs incurred in promoting your rental property to your target audience qualifies as a deductible.

6. Operating Expenses

If you’re a full-time rental property professional, this is another area that can help you answer the question “can you deduct property taxes?” Any expense accruing from day-to-day operations related to your rental property is deductible. If you work from home as a full-time landlord, your home office can be expensed.

Take note that you will need to be extra careful with the records you keep for this kind of cost. The IRS is particularly careful when scrutinizing this specific expense due to past abuses. A rental property professional as classified by the IRS is one who spends more than one-half of their working time in the rental business.

Items you can expense here include:

  • The home office square footage.
  • Rent for any rental-related office you operate out of the home.
  • Phone bills.
  • The rental software you use.

7. Cars

Landlords find themselves using their vehicles for business-related reasons. Others end up purchasing cars specifically for the business. The expenses resulting from this are deductible in the year you incurred them. The actual vehicle should be depreciated over the years. You can choose between expensing a standard mileage rate per business mile or the actual costs.

8. Taxes

Can you deduct property taxes using other taxes? Absolutely. The types of taxes that can qualify as deductible are:

  • Permit fees.
  • Inspection fees.
  • Unemployment and Medicare taxes for the employees.
  • Employee social security taxes.
  • City, state and county taxes.

9. Travel Expenses

When you have to travel to access your rental property, you incur expenses. These costs are also deductible, and they can include:

  • Hotel charges.
  • 50% of meal costs during long distance travel.
  • Air fares.
  • Taxis and car rentals.

10. Commissions

A common practice among many landlords is to offer an incentive to tenants for referrals. At times, these incentives go to sales people. These are commissions, and you can claim them.

11. Mortgage Expenses

The interest you pay on loan is deductible and for many landlords its most likely the biggest expense item. Buy-down points from a mortgage refinancing or property you buy also qualifies as deductible. Other types of interest that are eligible include:

  • Credit card interest on rental-related costs.
  • Interest stemming from HELOC loans used in rental-related matters.

12. Depreciation

Depreciation is a deductible expense but not in one year. This is to prevent any landlord from expensing their entire depreciation projection in a year and sell the property the following year to avoid the tax liability. The claim on this expense is spread over several years. The three primary costs related to depreciation that you should expense are:

  • Any equipment (computers can apply here).
  • The value of the structure and not the land.
  • The value of any improvements on the structure e.g. shelves, appliances, countertops, etc.

Conclusion

Property ownership is a worthy investment encouraged by the state. Can you deduct property taxes as a landlord? Yes, you can. There are several ways you can claim the deductibles, but you must know the specific terms for each. A landlord that exercises their tax deductibles increases the total return on their investment.