Owning a rental property in Lakewood, California, is very much like owning a small business. Property owners must manage the property, use customer service skills with tenants, market vacancies, and take advantage of rental property tax deductions when doing accounting work.
Many Lakewood landlords are unaware of important rental property tax deductions that could be saving them a ton of money at the end of the year. As with most investments, you must pay taxes on your profit. However, you can pay less of these taxes if you deduct the right expenses.
By the end of this article, you’ll have a list of the most surprising rental property tax deductions you can claim on your next tax return.
Important Rental Property Tax Deductions for Landlords
When you own a rental property, it’s important to keep track of your expenses and the rental income you collect. Each time you pay for an item, repair, or service pertaining to your rental property, keep the receipt. This could be a tax deduction!
Be sure to remember these Lakewood rental property tax deductions when tax season approaches.
1. Mortgage Interest
Most investment property owners, especially first-time landlords, take out a mortgage to purchase their property. Along with this loan comes interest, which is tacked onto your monthly payment.
While nobody likes the idea of paying interest on a loan they’ve taken out, it’s considered a tax deduction in the case of a rental property. That’s right! The interest you pay on your mortgage can be deducted from the taxes you pay on your Lakewood rental property income.
Your mortgage lender will send you a 1098 form to include when filing your taxes, so you know how much interest you’ve paid during the year.
2. Property Taxes
While it may seem a bit strange, the property taxes you pay are actually tax-deductible on your rental income. It’s actually one of the most commonly missed tax deductions. Typically, property owners pay a portion of their property tax each month with their mortgage payments.
Fortunately, the IRS allows you to write off this tax since it’s seen as an expense. However, there are limits to how much you can write off. For example, those filing their taxes as a single person (or separately) can only write off $5,000 in property taxes.
3. Property Repairs
Any repairs made to the property are considered tax-deductible. This includes the tools and materials purchased to make the repair or hired help to have the repair done by a professional.
Property repairs that are deductible include home appliances, garbage disposals, plumbing, sealing foundation cracks, and more.
You cannot, however, deduct the cost of adding amenities to the property. For example, renovating a bathroom is not considered a deductible repair. So, you cannot write off this expense.
While you hope that the value of your property increases over time, which it usually does, you can deduct its depreciation.
This means that each year, you can write off a portion of the total amount you spent to purchase the property. This is known as depreciation and has nothing to do with the actual value of your Lakewood rental property.
5. Insurance Premiums
To protect yourself and your investment property, you should have a landlord insurance policy. This policy protects the property in case of fire and other damages, and it protects you from liability, lost rental income, and more.
Not only do your insurance policies keep you safe as a landlord, but the premiums you pay are tax-deductible in Lakewood. It’s a win-win situation when you take out a landlord insurance policy.
If you are gracious enough to pay for some utilities to keep your Lakewood rental property up and running, you can deduct this expense from your taxes. Utilities such as electricity, water, gas, and even trash collection are all tax-deductible.
Some landlords have tenants reimburse them for the utilities they cover. You may still deduct the utility costs and claim the reimbursement as income if this is the case.
7. Tenant Acquisition
It can become quite expensive to acquire a new tenant and fill your vacant rental property in Lakewood. Luckily, you can deduct the expenses you accrue while trying to find a new tenant.
Expenses such as rental listing fees, tenant screening tools, advertising fees, and commissions paid to professionals who find a new tenant are all considered tax write-offs.
8. Professional Services
The reality of being a landlord in Lakewood is that you can’t do everything on your own. At some point, you’ll have to work with professionals to help you make the right decisions for your investment and manage it.
If you consult a lawyer, use an accountant, or pay for any other professional service that directly relates to your rental property, you can deduct these fees.
9. Unpaid Rent
Unfortunately, landlords sometimes come face to face with a tenant who doesn’t pay their rent. No matter the reason, if you’re never able to collect the rent from this tenant, you can write off this loss when you file your taxes.
One overlooked rental property tax deduction is the cost of transportation to and from the property. If you’re traveling back and forth to the property for showings or making repairs, you can write off the mileage on your taxes.
Be sure to keep track of how many miles you drive each way, as this will be important when filing your taxes.
11. Property Management Fees
One of the best decisions landlords with rental properties in Lakewood can make is to hire a property management company. These professional companies fully manage and maintain the rental property, interact with tenants, and even handle the accounting and finances of the property.
The fee you pay to have this service is also tax-deductible – it doesn’t get better than that!
You can have a professional take care of your Lakewood rental, generate rental income without lifting a finger, and write off this expense.
Never Miss a Rental Property Tax Deduction in Lakewood Again
Your rental property is in great hands when you work with CMC Realty and Property Management. As an experienced Long Beach property management company, not only do we ensure your property is leased by high-quality tenants, but we identify specific tax deductions on your rental property.
It’s never been easier to own a rental property in Lakewood!
Contact us to see how we can help you maximize your rental income today!