What Can Rental Property Owners Deduct From Taxes?

By Own It Detroit

A property manager smiling

One of the most convenient aspects of rental property ownership is the ability to deduct a portion of expenses from your taxable investment property income. Detroit property management professionals can help you calculate these deductions, but it's good for real estate investors to understand tax deductions to maximize these benefits. 

What can a property owner deduct from their taxes? Read expert insights here from the best property management company Detroit offers. 

Understanding Rental Income

Deductions take place after calculating rental income in a tax year. Property owners must include all gross income received as rent in return for a tenant to live in a property. If you have multiple rental properties, it's important to include all rental income (and expenses) to file your taxes accurately. 

Tax Troubles (R) (S)

Depending on when you receive the security deposit for a property and how you process it, you might need to include these funds as "income" when processing your taxes. In addition, maintenance or other costs incurred by a renter related to your property could also be considered income. 

To avoid the potential for an audit, work with an accountant and a Detroit property manager to track and report all income for your properties.

What Can Property Owners Deduct?

Deductions help real estate investors maximize returns for a property. In fact, appropriate deductions can be a valuable aspect of optimizing ROIs each year. 

When reviewing potential deductions with a Metro Detroit property management company, be sure to include:

  • Mortgage interest. Financing a rental property with a mortgage means investors can deduct mortgage interest from taxes. 

  • Property taxes. Property taxes are an ongoing expense when operating rental properties. However, these taxes are also a deduction at tax time. 

  • Repairs and maintenance. Ongoing repairs and maintenance become deductible expenses for property owners. Make sure these expenses relate directly to a property and keep track of receipts throughout the year. 

  • Insurance premiums. Every property owner should have comprehensive landlord insurance policies to protect their investments. While it might seem like an unnecessary expense, premiums can be deducted from tax payments.

  • Marketing Costs. Advertising available rental units is an important task to minimize vacancies and find quality renters. While choosing low-cost marketing options can save money upfront, you might pay the price of bad renters or lengthy vacancies. Keep in mind that many marketing costs are tax-deductible (and worth every penny)!

  • Materials and supplies. Keeping properties in excellent condition requires plenty of materials and suppliesand these are deductible expenses. In addition, office supplies and other materials needed to run your real estate investment business can often become deductions, as well. 

Many of these deductions are easily tracked by receipts or with a good bookkeeper or property manager to keep you organized. 

What About Depreciation? 

Buying appliances to upgrade a property, the property's value, and other aspects of your rental property business can benefit your tax savings through depreciation. This requires investors to spread out a deduction over the estimated lifespan of the item. So, a new dishwasher or oven helps as a depreciation deduction over several years, rather than applying the full amount in the year it was purchased and installed in a property. 

Repairs vs. Improvements

We mentioned the valuable deductions from maintenance and repairs for rental properties. However, property owners must understand the difference between "repairs" and "improvements" when finalizing tax filings. Improvements must also become a depreciated deduction, while repairs can be deducted in the year the expense occurred. 

A property improvement can include getting a new roof, replacing the landscaping, or replacing carpets. Deductible maintenance would include fixing a hole in the roof (rather than replacing it) or fixing a plumbing leak. 

Don't Forget About Professional Services

A property management group can help you track and itemize deductions you might forget about throughout the year--but that's not the only way they help your tax benefits! A rental owner can also deduct professional management fees, including property management fees for professional services. 

Smiling businessman with laptop and documents (R) (S)

While the benefits of property managers are many, being able to deduct their fees means real estate investors benefit from expert property management services with a better bottom line! Investors can also deduct costs for tenant screening, an accountant, a real estate attorney, or contractors. 

If you're not sure that you're including every potential deduction when processing your next tax return, work with a property management team and a real estate accountant to maximize returns!

Maximize Tax Deductions With Professional Property Management

Tax deductions are important for real estate investors to maximize their rental property returns. However, it's essential that property owners understand what can and cannot be deducted to avoid legal repercussions. We recommend working with the best property management company Detroit has available so they can help optimize your return on investment by maximizing tax benefits! 

If you need assistance in understanding how to use these strategies correctly, look for the best "property management near me" or reach out to Own It Detroit today. We're happy to walk you through our property management services and help you make more money!

Learn more about how property managers benefit investors! Download our free guide. 

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