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. 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 Allston rental property owner can really 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. For instance, if you employed someone to fix the plumbing in your rental home 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 repairs on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This is specifically referring to payments made towards the loan principal. Any mortgage interest and property taxes you pay are still deductible.
- Entertainment expenses. It doesn’t matter if the entertainment purchased is related to your business. However, you may 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 that don’t go over $25 are all right.
- 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 like replacing your windows with newer ones or adding a patio to your rental house. These costs aren’t wasted, though. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. You should include these 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. There is a notable exception, however, and that is if that space is used 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.
Essentially, income tax deductions are complicated— they are difficult to understand and change over the years. While tax-related issues and questions are best addressed by a tax professional, there are still things you can do to maximize both your time and profit. When you hire Real Property Management Commonwealth, 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 Allston property managers can provide you with the support you need to ensure that each potential tax deduction is taken while removing any disallowed items that might lead to problems with the IRS. With our assistance, you will be confident and 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 617-299-2342.
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