9. Closing Costs
Many closing costs are tax deductible, and others can be depreciated over time as part of your acquisition cost. Use an accountant with a deep knowledge of real estate investments, and send them the settlement statement (previously called a HUD-1, now known as a CD or closing document) for each property you bought last year.
10. Property Management Fees
Paid a property manager to handle the headaches and field those dreaded 3 am phone calls from tenants? You can write off their management fees, including monthly percentage fees, new tenant placement fees, and any other fees the manager slaps you with.
If you’re still on the fence about hiring one, here’s what you should know about whether to hire a property manager.
11. Rental Property Insurance Is Also Deductible
Like homeowner’s insurance for your primary residence, your landlord insurance premium for each property is also tax deductible.
Unlike homeowner’s insurance, you don’t have to itemize your personal deductions to take landlord insurance as a rental property deduction.
12. Rent Default Insurance
You can also deduct the cost of rent default insurance policies for each property. Not familiar with rent default insurance? If the tenant stops paying the rent, the insurance company pays it until you go through the eviction process and sign a lease agreement with a new tenant. It protects you against tenants failing to pay rent, so you never go without rental cash flow.
They’re not very expensive either, usually $300-900 per year. Try The Guarantors or Steady; we’ve vetted both as a reputable and easy insurance provider to work with.
Often, the renter foots the bill for rent default insurance policies, making the landlord deduction a moot point.
13. Mortgage Interest
All interest you pay to your mortgage lender on rental property loans remains tax deductible. As mentioned above, it’s an “above the line” deduction from your taxable rental property income on Schedule E of your tax return.
But for your primary residence, the IRS limits the deductibility of mortgage interest only up to $750,000 of home mortgage debt for married couples, $375,000 for single filers.
14. Mortgage Insurance (PMI/MIP)
No one likes mortgage insurance (other than banks). But at least you can deduct the cost from your taxable rental property income.
Note that mortgage insurance only applies to conventional and FHA loans, not privately issued portfolio loans. You don’t have to worry about mortgage insurance if you borrowed your rental property loan through a private portfolio lender like Kiavi or Forman Loans.
While at it, check to see if your mortgage balances have fallen below 80% of their respective property values. If so, you can apply to have PMI removed from the loan and potentially save yourself hundreds of dollars per month.
The same goes for your home, not just your rental properties!
All professional fees associated with your rental properties are tax deductible. Bookkeeping, accounting, attorney, real estate agent, and any other fees you pay for professional services can be deducted from your taxable income. Don’t forget the cost of any bookkeeping or landlord software (ahem!) you use.
However, one wrinkle introduced by the TCJA is that personal tax preparation expenses are no longer deductible since 2018. However, business accounting – such as for your real estate LLC or S-corp – is still deductible as a rental business expense for landlords. Talk to your accountant about shifting as many tax preparation expenses as possible to the business side of the books!
16. Tenant Screening
Those fees are deductible if you paid for tenant credit reports, criminal background checks, identity verifications, eviction history reports, employment and income verification, or housing history verification.
Even better, the applicant should be able to pay directly for tenant screening report costs. Which, I might add, our landlord software allows you to do!
17. Legal Forms
Did you buy a state-specific lease agreement this year? Eviction notices? Property management contracts? The cost of legal forms is also deductible.
18. Deductible Property Taxes
Under the Tax Cuts and Jobs Act, landlords can still deduct rental property taxes as an expense.
But it’s a little more complicated for homeowners, and even though this is a list of landlord tax deductions, let’s take a moment to review the changes for homeowners, shall we?
However, you can no longer deduct for state and local taxes (SALT deduction) over $10,000, a significant change since 2017. These state taxes include state and local income, sales, personal property, and… homeowner property taxes.
What does this mean for landlords calculating rental income in high-tax states like New York, New Jersey or Connecticut? It could mean that more people may relocate to lower-tax states like Florida and even spark lower property values in states like New Jersey. Only time will tell.
19. Phones, Tablets, Computers, Phone Service, Internet
Did you buy a new phone this year? Maybe a new laptop or tablet? If you use it for work, you can probably persuade your accountant (and the IRS) that the costs should be deducted from your taxable income. Or, more likely, depreciated, as most of these devices come with a lifespan that the IRS classifies as multiple years.
Likewise, for internet bills, phone service charges, and the like, with the caveat that you need to be able to document that it was for business purposes. Printer toner, computer paper, pens, and the like; keep those receipts.
20. Rental Property Licensing & Registration Fees
Licensing and registration fees are sometimes a local requirement for landlords, and they can be added as rental property tax deductions. For instance, in the city of Philadelphia, a rental license fee and an inspection of the property are required.
So, if you’ve had to purchase or renew a landlord or rental license for the property, that cost is deductible.
Furthermore, some localities will require a vacation rental license for short-term rentals such as seasonal, AirBnB, etc. These licensing costs are deductible as well.
21. Occupancy Tax Expense
Some states assess an occupancy tax on collected rental amounts, comparable to paying sales tax. You see this more often in states where short-term rentals are common. Florida, Arizona, and New Jersey are examples of states that charge an occupancy or tourist tax.
If you own rental property in an area that charges an occupancy-like tax, then the amount is tax deductible. Remember, however, that the tax will not only differ from state to state but also from local jurisdictions like cities and counties.
