Last-Minute Tax Tips: Rental Property Deductions

Ahh, April. The highs of March Madness are forgotten all too soon as Tax Day looms large in the not-so-distant future. Recognizing that a few of us might be scrambling to wrap up our taxes in time for the April 15 deadline, we plumbed the Internet for guidance on rental property deductions. Don’t overlook the following last minute tax tips in the mad dash to the finish:

Insurance premiums
Of particular interest to us, of course, is the ability to deduct insurance premiums, such as those on umbrella policies. Here’s how Lucas Hall of Landlordology explains it:

All business-related insurance premiums are tax-deductible. When trying decide if the insurance is business related, I ask myself, “Would I buy this insurance if I didn’t own a rental?”

I have an Umbrella Policy which covers my personal assets and legal liability above and beyond the coverage on my rental properties. Because of the added risk involved with one of my less-polished properties, I decided to purchase this additional coverage.

I would not have purchased this policy otherwise, and therefore I can classify it, in good conscience, as a business expense.

Repairs and improvements

Repairs can be deducted simply and immediately. Improvements must be depreciated over several years. So, which is which? Repairs are usually one-time fixes that help keep the property in good working condition and habitable. Improvements increase the value or extend the life of the property. Donna Fuscaldo breaks it down on Houselogic:

Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture.

Maintenance

This one can get roped into the above categories mistakenly, but maintenance is more about general upkeep, rather than a single repair or an upgrade. Per Landlordology:

…[W]ith maintenance, you’re not necessarily fixing anything. For example, the lawn will always need to be cut but it is never really “broken.” You can also hire a pest company to treat the property every few months to prevent further infestations, even if the original pests are long gone.

Travel expenses

This is one that could easily slip through the cracks. You can write off expenses related to traveling to and from your property for management purposes. Per Houselogic:

You can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2015, it’s 57.5 cents per mile.

Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities.

Other potential deductions to keep in mind as the clock winds down:

• Mortgage interest
• Taxes
• Utilities (if you cover them for renters)
• Advertising
• Commissions paid to rental agents
• Homeowner association/condo dues
• Legal fees
• Office expenses

Good luck in the homestretch!