Friday, February 1, 2008

Top Ten Tax Deductions for Landlords

Top Ten Tax Deductions for Landlords
No landlord would pay more than necessary for utilities or
other operating expenses for a rental property. But, every
year, millions of landlords pay more taxes on their rental
income than they have to. Why? Because they fail to take
advantage of all the tax deductions available for owners of
rental property.

Rental real estate provides more tax benefits than almost
any other investment. Often, these benefits make the
difference between losing money and earning a profit on a
rental property. But tax deductions are worthless if you
don't take advantage of them. Here are the top ten tax
deductions for owners of small residential rental property.

1. Interest. Interest is often a landlord's single biggest
deductible expense. Common examples of interest that
landlords can deduct include mortgage interest payments on
loans used to acquire or improve rental property and
interest on credit cards for goods or services used in a
rental activity.

2. Depreciation. The actual cost of a house, apartment
building, or other rental property is not fully deductible
in the year in which you pay for it. Instead, landlords get
back the cost of real estate through depreciation. This
involves deducting a portion of the cost of the property
over several years. Residential rental property must be
depreciated over 27.5 years. However, if done properly,
the depreciable life can be shorted to 15 or 5 years.

3. Repairs. The cost of repairs to rental property
(provided the repairs are ordinary, necessary, and
reasonable in amount) are fully deductible in the year in
which they are incurred. Good examples of deductible
repairs include repainting, fixing gutters or floors,
fixing leaks, plastering, and replacing broken windows.

4. Local travel. Landlords are entitled to a tax deduction
whenever they drive anywhere for their rental activity. For
example, when you drive to your rental building to deal
with a tenant complaint or go to the hardware store to
purchase a part for a repair, you can deduct your travel
expenses. If you drive a car, SUV, van, pickup, or panel
truck for your rental activity (as most landlords do), you
have two options for deducting your vehicle expenses: You
can use the standard mileage rate or you can deduct your
actual expenses (gasoline, upkeep, repairs).

5. Long Distance Travel. If you travel overnight for your
rental activity, you can deduct your airfare, hotel bills,
meals, and other expenses. If you plan your trip carefully,
you can even mix landlord business with pleasure and still
take a deduction. However, IRS auditors closely scrutinize
deductions for overnight travel -- and many taxpayers get
caught claiming these deductions without proper records to
back them up. To stay within the law (and avoid unwanted
attention from the IRS), you need to properly document your
long distance travel expenses.

6. Home Office. Provided they meet certain minimal
requirements, landlords may deduct their home office
expenses from their taxable income. This deduction applies
not only to space devoted to office work, but also to a
workshop or any other home workspace you use for your
rental business. This is true whether you own your home or
apartment or are a renter.

7. Employees and Independent Contractors. Whenever you hire
anyone to perform services for your rental activity, you
can deduct their wages as a rental business expense. This
is so whether the worker is an employee (for example, a
resident manager) or an independent contractor (for
example, a repair person).

8. Casualty and Theft Losses. If your rental property is
damaged or destroyed from a sudden event like a fire or
flood, you may be able to obtain a tax deduction for all or
part of your loss. These types of losses are called
"casualty" losses. You usually won't be able to deduct the
entire cost of property damaged or destroyed by a casualty.
How much you may deduct depends on how much of your
property was destroyed and whether the loss was covered by
insurance.

9. Insurance. You can deduct the premiums you pay for
almost any insurance for your rental activity. This
includes fire, theft, and flood insurance for rental
property, as well as landlord liability insurance. And if
you have employees, you can deduct the cost of their health
and workers' compensation insurance.

10. Legal and Professional Services. Finally, you can
deduct fees that you pay to attorneys, accountants,
property management companies, real estate investment
advisors, and other professionals. You can deduct these
fees as operating expenses as long as the fees are paid for
work related to your rental activity.

Warmest Regards,

Tom


----------------------------------------------------
Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on these strategies, Tom is an adjunct professor
in the Masters of Tax program at Arizona State University.
For more information, visit
http://www.provisionwealth.com.com .

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