Real Estate Investing Podcast

Rental Property Tax Deductions
Posted Thursday, September 29th, 2022 by Richard Roy

[00:00:19] Aaron Ivey: Thanks for choosing to listen to this episode of the Behind the Curtain Podcast, where we talk about property management and investment real estate services in the general Memphis, Tennessee area, also now including North Mississippi. A lot of our investors ask the same questions, so we wanted to take this opportunity to answer some of the more commonly asked questions, by investors when they call and consult with me or one of my agents at Enterprise Property Manage.

[00:00:49] Probably one of the more common questions asked is this one:

Are my property management fees tax deductible?

Well, obviously I would have to be a, a licensed tax preparer or a CPA in order to be able to answer those questions for you. So what I did do is I went online, in order to find a qualified person or entity to be able to answer those questions and I came across and this organization is run by and advised by persons that are certified public accountants and tax preparers. So based on a most recent article that they wrote that I found online today, here were their answers.

The following fees are tax deductible when getting your property ready for lease:

[00:01:37] And so this is, this would be for a vacant property, the cost of getting your property ready to rent to the public, which includes any and all make ready work to the property. So let’s just stop right there. The house is most likely going to need to be painted. There might be some flooring, repairs, or cleaning. You’re going to have some small repairs, in any house, such as faucets or light fixtures, light bulbs, door handles, re-keying, any sort of exterior maintenance such as the replacement of siding or roofing. All of these things are gonna be very important in order to make the property ready to lease again. All of those items should be tax deductible. So you want to take a specific accounting of what those are, what the items are. One of the things that Enterprise Property Management does for our investors is if you use one of our make ready contractors, we’re going to send you all the documentation that you need in order to provide that to the IRS to show where you are paying for materials that are tax deductible. And also obviously labor to do those things as well. Invoices that we send over to all of our investors are broken down, so that you can deduct every possible expense.

Is investment property advertising tax deductible?

[00:03:02] You can tax deduct any paid advertising to attract tenants. This includes the advertising fee that Enterprise Property Management charges when a property is vacant and showing. We’ve mentioned before that we use the Zillow Rental Network for broad market internet syndication of real estate listings. So that would be something else that you can deduct.

Is property maintenance tax deductible?

[00:03:24] You can deduct any property maintenance performed or substantial upgrades to the property, such as the installation of a new roof, new water heater, new appliances, new HVAC. These are all said to be depreciable over a significant period of time. I think it might be 10 years, but again, you’d have to talk to your tax preparer for that and will provide some tax coverage and some shelter for the length of your ownership of that property. I know that when I do my taxes, my CPA always shows me what the expense was that I paid for three, four, and five years ago, and how that is continuing to be depreciated and giving me some, in essence, credit on my tax obligation.

Are rental property supplies tax deductible?

You can break out supplies and materials for any property that is a short term rental, so an Airbnb or a VRBO, Which is vacation rental by owner, any time that you have to restock materials or supply materials for the short term residents to use, these are also tax deductible.

Can I tax deduct software service fees used for managing my rentals?

[00:04:15] Any software services that you use for short-term rentals, that should be tax deductible.

Any insurance payments you make on your investment properties are tax deductible.

[00:04:35] I want to talk just briefly about why that makes so much sense for an investor to be able to do deduct insurance premiums on their taxes. Investors generally don’t want to spend a lot of money on insuring their properties. They’re looking to get the most cash flow possible annually, and so investors don’t tend to fully insure, or even slightly over insure a property because they don’t want to give their cash away and their cash flow.

[00:04:55] What our federal government allows us to do is to tax deduct according to their equation. So it’s not the full amount, but it’s still a portion of the property insurance that you’re paying for at that property. So that should make it a little bit easier for investors to say, You know what? I am gonna get 100% coverage instead of the discount 80% coverage policy, or I’m going to add that extra level of general liability coverage or a general liability umbrella over all of the properties. Because again, Insurance premiums are tax deductible, so it’s something to remember when you’re considering your insurance coverage.

Are there other tax deductible expenses relating to investment property?

[00:05:37] Yes, there are some other small tax deductible expenses that you’ll encounter. We have cleaning and maintenance, depreciation of the property. This is something that you have to talk to your tax preparer about because depreciation can be very tricky, and we can talk about advanced depreciation later.

[00:05:54] Homeowners association dues or condominium fees, interest expenses on the loan that you’re paying, property taxes, property management fees – so my fees are tax deductible. Pest control, equipment rentals, rents that you may have to pay to other people during the ownership for that year. Building supplies, trash removal, travel expenses, this is a great one.

Tax Deduction of Travel Expenses

[00:06:18] So travel expenses, if you’re traveling to and from the property to show it to prospective tenants if you’re traveling, in order to do the maintenance yourself or to monitor, the maintenance that’s being performed at the property. All of that travel is tax deductible.

Property Utilities

[00:06:38] Utilities, my goodness, this property’s gonna have electricity, it’s gonna have water. It could have heat and natural gas going on during the winter. You have to cool it during the summer. All of those things are tax deductible with your utilities.

And finally, yard maintenance

Again, just as a quick wrap up, I do wanna ask that you talk to your tax preparer, or if you have a CPA, please refer to that person or if you have some other sort of qualified system through which you can gauge whether or not your expenses are tax deductible. Tax code changes every year, so even though right now these items are tax deductible, it could change. It could get better, it could get worse. So always be paying attention and updating your own knowledge base on what is and is not tax deductible and keep every receipt. So here at Enterprise Property Management, anything that we spend money on, on your behalf, anything that we buy, any service that we provide, we are going to keep an accurate accounting of all of that with images on our server that you can access on your portal through our website at any time, 24 hours a day. Tax prepares love us. So if you have any other questions, you can give us a call or send us an email. You can call me up at the office and we can chat about it at 901-260-0206. Thanks for listening and I look forward to speaking with you soon.

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