Rental Expenses Landlords CAN’T Deduct on Their Taxes

property manager near me always dwells on taxes. Investors in rental properties have many expenses that can be deducted on their taxes. There are three primary groups expenditures fall into for tax purposes. The first group includes expenses that can be deducted in the year the money was spent. These expenses include routine maintenance and upkeep, management costs and fees, and home or neighborhood association dues.

The second group of expenditures are deductible , but over a period of years, not all in the year the funds were spent. This is called a depreciated expense and generally includes anything that lasts longer than one year. These kinds of expenditures include new appliances, heating, and cooling equipment, and the building itself.

The third group of expenditures cannot be deducted at all.

Some everyday items that generally cannot be deducted from your taxes include the following:

  • The cost of the land the rental property is located on. Land is considered to last forever and never wear out. However, the assessed value of the land changes over time, either increasing, or decreasing in value. In some states, the local taxes paid for the land are deductible. Others do not allow this deduction. However, the value of the land cannot be depreciated. If you own the buildings and do not own the land, the cost to lease the land is potentially deductible as an annual expense.
  • The fees paid to anyone for referring a tenant to you are capped at $25 for deductions.
  • Any amount paid over $25 as a gift for any purpose is not deductible.
  • If you allow family members to use a property without paying rent, you cannot claim the unpaid rent as an expense or a loss.
  • Certain expenses paid at closing will be deductible as business expenses in the year of the closing, but others will need to be included in the value of the property and depreciated over time. Some legal fees cannot be deducted at all.
  • You cannot deduct the difference in prime rent from the reduced rent charged when the condition of the property changes , or , changes in the neighborhood, or the community the property is located in changes and the rents the property commands are reduced by these market conditions. If a military base closes and the inventory of apartments exceeds the number of rental customers , you cannot deduct the difference between the new reduced rent and the original rent.
  • You cannot deduct the lost income from a unit or building that you take off the market. If a multi tenant building needs extensive renovations and you stop renting units , the lost rent is not deductible. This also impacts your depreciation.
  • Membership in a buyers club such as Sams or Costco cannot be deducted as a business expense. This is because it is not a necessary expense. However, goods purchased for the use in the business, like cleaning materials or copier paper used to copy leases can be deducted as business expenses. The same goes for social clubs where business deals might be discussed. Strictly professional trade organizations are generally deductible.
  • Parking tickets, safety citation fines, late fees on taxes are not deductible.
  • Business attire is generally not deductible. Attire that is “ specialized” like a work uniform with the company name is deductible.
  • Meals: if you decide to treat the staff to a “ lunch and learn” event, generally only half of the food cost is deductible. Only half the cost is deductible if the lunch is a reward for achieving a goal or just for recognition.
  • Attorney and legal fees are not deductible. This is why itemized settlement statements when buying or selling real estate are so vital.
  • Federal taxes paid are not deductible as a business expense. Generally, any taxes are not deductible.
  • Bribes, kickbacks, or anything illegal. Materials imported into the US illegally or fraudulently are also not deductible. Be certain that if you buy furnishings for furnished apartments, that the correct import tariffs are paid, and include that in your contract to purchase. Wages paid to workers “ under the table” are not deductible as a business expense.
  • Travel for a travel companion that is not a direct employee or owner of the business. Owner or staff travel for business purposes is deductible, but a non employee travel companion, or a spouse not employed or an owner is not deductible.
  • Late fees or collection fees that are deducted from a tenants deposit are not deductible as business expenses.

The Benefits of Using Premier Business Investments

The tax laws governing property management benefits are complex and varied. Premier Business Investments always works with our property owners to insure they receive the information they need to address the expenses with a tax professional. Premier Business Investments does not provide legal or tax advice.

As your property manager, we supply the detailed financial documentation our property owners need to work with tax and legal professionals. Advanced Business Investment strives to maintain close tenant and property owner communication. We employ the latest rapid online application and approval systems to engage prospective tenants early and with the least amount of difficulty for the tenant.

And lastly, we utilize online, and app based ,and call in systems to report maintenance issues. Our maintenance staff is on 24 hour call in the event of an emergency. Our goal is to manage all of the properties entrusted to us as if they are our own properties and to maximize the return on the properties.