Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but it doesn’t mean you can deduct every cost you incur. There are some expenses that you cannot legally claim. What’s more, under the 2017 Tax Cuts and Jobs Act, deductions for rental property owners have undergone changes recently. These developments mean that you may or may no longer need to keep a tally on certain expenses, especially those that are no longer allowed. Learning what Newport News rental property owners can or cannot claim as tax deductions can greatly simplify your income tax return preparation.
You have to know the first rule when deducting expenses: you cannot deduct expenses you didn’t actually pay during the tax year. A good example would be when you hire someone to inspect and repair the electric wiring in your house on 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 means any payment you make toward the loan principal. These aren’t deductible. However, mortgage interest and property taxes are both still deductibles.
- Entertainment expenses, despite the expense being 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. Anything below $25 is still good.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if these payments are made for business reasons.
- 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. These would better be included 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. Lobbying costs or campaign events aren’t classified as approved deductibles.
- Home office space, unless you use that space exclusively for business purposes. Even by putting a family computer in the room, it may mean that your home office deduction will be disallowed.
The bottom line is that income tax deductions are complicated and difficult to understand. To make matters worse, the rules change from time to time. 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 work with Real Property Management Dominion, we will assist you and guide you through the confusing maze of tax deductions so you will never have to wonder whether you are keeping track of the right items.
Our team of Newport News property managers can provide you with the support you need to ensure that each potential tax deduction is taken while staying away from any disallowed items that might lead to problems with the IRS. With our help, you will be well on your way to success both during tax season as well as throughout the year. Feel free to contact us online or by phone at 214-227-2404. We’ll be glad to answer any of your questions.
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