What Can Property Owners Deduct at Tax Time?

Property owners in Salt Lake have a lot to keep in mind when managing their rental properties. Investors must think about renters, rent collection, upkeep of the property, and even taxes. Rental property tax responsibilities are something property owners must keep top of mind as rental income must be reported tax return. However, real estate investors can also deduct expenses to counter that income. Salt Lake property management companies can help you better manage these administrative tasks. Keep reading for expert insights!

What Can Property Owners Deduct?

When you receive income for your rental property, you also have the ability to deduct expenses against that income on your tax return. These expenses vary from some types of repairs and operating expenses, and more.

Businessman Holding Blocks with TAX Word (R) (S)Mortgage Interest and Property Taxes

A property owner can deduct two critical items, including mortgage interest and real estate property taxes. When you pay mortgage interest on a financed property, work with your accountant to deduct these costs appropriately. Your accountant can also property taxes for a rental property. A Salt Lake property management company can help you keep track of these records throughout the year and gather appropriate documentation, so that come tax time, you have the amounts ready to report on your tax return.

Ordinary and Necessary Expenses

Property owners can also deduct ordinary and necessary expenses to maintain a rental property. These expenses will include maintenance of the property, any utilities that you pay, requirements such as landlord insurance premiums for the property, as well as any advertising to find and screen new tenants. These ordinary and necessary expenses require you to keep good records so that again, come tax time, the information is available.

As you conduct maintenance for your property and general upkeep, the costs of materials to do this are also things you can expense. For example, think of these expenses landscaping repair during the make-ready process, costs of cement to patch cracks in the foundation, or invoices paid to contractors and repair technicians.

If you allow tenants to conduct specific repairs and they pay for materials to fix something in the property, you can still deduct those costs after reimbursing your renter for their out-of-pocket costs. For example, if you have a tenant that made a payment to a plumber when they came on-site to repair a pipe because you could not be there for the on-the-spot payment, hang on to the invoice after paying your resident back for the work.

The best property management companies Salt Lake offers can help you identify potential deductions from ordinary and necessary expenses required to operate your residential properties. 

What About Deducting Improvements?

What if you were to do any major improvement work to your rental property? These would include things such as the remodeling of a bathroom or kitchen. When you make improvements to a property, be careful about expenses you try to deduct in the year the upgrade took place vs. what isn’t allowed by the IRS. Your accountant and a Salt Lake City, UT property manager can help you understand how to capitalize on these improvements and apply the deductions as depreciation.

To depreciate improvements to a property, take the total cost and divide it by the number of useful years. So if you spend $1,000 on improvements and the determination is that the useful life is five years, you could, in theory, get a $200 depreciation expense annually on your next five tax returns. There are other special rules with the depreciation that will let you opt to take the entire expense in a single year. Still, it will be dependent on your tax situation and guidance from your tax professional and professional property managers.

New apartment building in suburban area (R) (S)When You Can Deduct Rental Property Expenses From Income

The timing of when you can deduct expenses from your rental income depends on your decision to be on a cash basis or accrual basis as a taxpayer. If you decide to be a cash basis taxpayer, you’ll report all rental income in the year in which you receive the cash. So, if someone were to rent your property in December 2020 but not pay you until January 2021 on a cash basis, that income is not reportable until 2021. Expenses work the same way, in that you would deduct the expenses when you actually pay for them versus when you take on the liability to pay them.

The other option is the accrual method of accounting. With the accrual method, rental property owners report income when they earn it, regardless of when the income is actually received.

Use a Salt Lake City Property Management Company to Maximize Deductions

Property owners should keep good records throughout the year to capitalize on deductions at tax time. Work with a Salt Lake City property management company to help you identify potential deductions and work with your accountant to maximize deductions! Reeder Asset Management is here to help. Reach out to learn more about our property management services!

To learn more about the ideal property manager, download The Guide to Finding the Best Salt Lake Property Management Company today!


Posted by:
Reeder Asset Management on November 24, 2021