Taxes can be complicated, there’s no wonder a lot of people hand them off to an expert. If you’ve started managing property there’s a whole other world to know and navigate when it comes to taxes. If you’ve got a short-term rental you know or are at least working to reap the benefits these hustles have to offer. Those benefits don’t start and stop when someone rents out your place, there are tax deductions out there you may be eligible for, don’t miss these opportunities, and check out the 10 income tax deductions you may be missing!
1. Pass-Through Business Tax Deduction
Under the Tax Cuts and Jobs Act that took full effect in 2018, residential landlords who own their rental property through “pass-through” entities — including sole proprietorships (meaning they own the property individually), limited liability companies, or partnerships — may be eligible to deduct an amount equal to 20% of their net rental income. This is a personal deduction that can be taken even if you don’t itemize. However, it’s not an “above the line” deduction that reduces adjusted gross income.
2. Deduction For Major Improvements
Section 179 of the tax code allows owners to write off the costs — up to $1,050,000 for 2021 — of certain personal property used in a business. Since 2018, vacation rental operators have been able to write off the costs of fire systems, security systems, roofs, and HVACs. Section 179 applies only to property used for rental more than 50% of the time.
3. Bonus Depreciation Deduction
Since 2018, short-term rental owners have been allowed to deduct the full cost of property such as appliances and furniture all in one year using 100% bonus depreciation. The deduction applies to new or used property placed into service from September 27, 2017, through December 31, 2022.
4. Mortgage Interest
The Tax Cuts and Jobs Act lowered the amounts that can be taken as personal deductions for mortgage interest on primary and secondary residences. However, these limits don’t apply to rental businesses, so you can deduct all mortgage interest on rental properties as a business expense.
5. Credit Card And Loan Interest
If you use credit cards or personal loans to pay for vacation rental business expenses, you can deduct the cost of interest payments on those accounts. As of 2018, personal deductions for interest on home equity loans were eliminated altogether, but you can still deduct this type of interest as a business expense for a rental property.
6. Property Taxes
Personal deductions for property taxes are capped at $10,000. However, similar to the mortgage interest deduction, the limit doesn’t apply to properties operated as rental businesses. Owners of rental properties can take the full amount of property taxes as business deductions.
7. Insurance
You can deduct the cost of any insurance that covers your rental property. You can also claim a deduction for private mortgage insurance (PMI) premiums on rental property for the year they were paid. However, if you prepay PMI premiums for multiple years in advance, you can only deduct the part of the PMI payment that applies to that year.
8. Marketplace Fees
Airbnb charges a “host service fee” of 3% of the cost of each reservation, while Vrbo/HomeAway charge annual subscription fees or pay-per-booking fees. These fees are completely deductible, so make sure you keep track of them.
9. Travel And Transportation Expenses
When you travel overnight for business related to your vacation rental, you can deduct expenses such as airfare, accommodations, mileage, meals, and other travel expenses. This could include activities such as:
- Traveling to your rental property to do repairs or maintenance
- Learning related to your rental, such as classes, seminars, conventions, or trade shows
- Meeting with business associates who work with you in your rental business
You can also deduct mileage for travel closer to home in order to visit your property or other related travel, such as going to a store to pick up supplies or equipment.
Keep in mind that any travel related to improvements, as opposed to those for repairs, may need to be added to the improvement’s tax basis and depreciated.
10. Home Office
If you manage your rental business from a home office, you may be able to deduct expenses related to the office, including equipment, supplies, and a percentage of many of the costs of running your home.
Getting The Most Out Of Your Rental
While many tax deductions for your rental business seem small, they can really add up. Make sure to record your expenses as you go along. Keeping detailed records of any expenses related to your rental makes things much easier when it comes time to file your taxes — as well as in case the IRS has questions down the line. Both knowing what you can deduct and keeping good track of those expenses can help you take maximum advantage of tax savings on your rental property
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