Tax time could mean saving time for landlords if they have the deductions and organization necessary to justify them. It’s easier to document rental expenses over the year than one may think, especially with the proper resources. Learn about the potential deduction claims and options, then see what resources may help you organize them all.
What is Deductible?
The IRS allows landlords to take deductions based on ordinary and necessary expenses for acquiring and maintaining rental properties. Typical deductible expenses include:
- Mortgage interest – Interest from loans taken out to acquire rental property.
- Property taxes – Property taxes paid to local and state governments; general real estate holdings.
- Repairs and maintenance – Anything that needs to be fixed like leaky roofs, broken appliances, etc., can be deducted in the year it occurs.
- Depreciation – The slow deduction process for a property’s worth over time.
- Insurance premiums – Landlord liabilities, hazard insurance, landlord insurance.
- Utilities – Utilities owned by the landlord incurred while renting the units.
- Professional Services – Legal fees (usually) and property management and accounting fees related to rental properties.
See IRS Tax Topic 414: Rental Income and Expenses for a comprehensive list of which expenses relate.
Important Note: Improvements that increase the value of the property or extend its life (according to IRS standards) should be depreciated instead of taking an added deduction. Remodeling a kitchen is assessed based on an increase in square footage, an increase in resale value, etc.
What Documents You’ll Need to Keep
One of the best ways to stand by your deductions, should your taxes ever be audited, is to have records of every transaction. For each expense you will deduct, keep the following:
- Receipts/invoices showing what was purchased or what service was rendered
- Canceled checks/bank account statements
- Contracts, leases, and agreements related to such expenses.
In general, keep these types of records for three years beyond your tax filing. Some landlords keep them longer when permanent improvements are made on larger assets/holdings.
How PropTech Can Help
If you have multiple properties or a lot of tenants to sort through, keeping necessary receipts by hand can become tedious over time. Property technology (a.k.a. PropTech) can seamlessly integrate important financial information with your property information so that you never lose what’s needed for your deductions. Prisma Landlord includes:
- Transaction report of rent payment – See historical rent collection payments through time, documenting what’s been collected and when.
- Maintenance tracking – From requests to resolutions, you’ll be able to match the maintenance to the receipts and invoices stored.
- Document storage for easy retrieval – Receipts, invoices, anything can be uploaded directly to the platform to give you organized access come tax time without anything lost along the way.
When your information is integrated into one place, the likelihood of losing anything supporting your deductions is minimized.
What Might Change in the Future
Often, laws change that landlords need to pay attention to. Be on the lookout for:
- Bonus depreciation rules – Bonus depreciation may phase out or face alterations, so be mindful every new season.
- Deduction limits – State and local tax limits may shift in deductions or mortgage interest.
- Energy efficiency – Deductions/credits for landlords making energy-efficient changes can expand as counties seek sustainable housing.
Consider checking with reputable critical resources like the National Association of Realtors’ tax resources or professionals who specialize in tax needs for real estate to help stay on top of changes throughout the year.
Bringing It All Together
Tracking deductions not only makes tax season easier, but it also facilitates business when the intended budget strategy is in place. Between documentation, reliable resources, and proactive technologies, any landlord can save dollars come tax season while enhancing life as a landlord in general.
If you’re ready to ease your landlord experience this tax season, consider utilizing Prisma Landlord for annotation features surrounding rent payments, maintenance requests, and storage solutions for all IRS-required supporting documents. Everything will be in one place when all you need is to keep things documented and access them all later.
