If you are an owner of one or more rental properties, there are many ways of claiming tax deductions. It’s important to understand what you can, and can’t, deduct on your tax forms. Here are some things to know about tax deductions for rental properties and claiming rental income and expenses.
You Can Claim Tax Deductions for All Rental Expenses
You are able to claim deductions for all rental expenses, which include:
- Property tax
Deductions may be claimed for all expenses related to utilities, which can make up a large amount of the expenses on the rental property. If you are renting the whole property, you can claim all of these expenses. If you live in part of the property and rent out part, you must claim the appropriate percentage.
Insurance Is an Expense
If you have home or mortgage insurance for your rental property, you can claim deductions on the insurance premiums you’ve paid that financial year. Some insurance plans cover more than a year, but when filling out your tax form, you can only deduct the payments from the past year. Similarly to all other expenses, you can only claim one hundred percent of your insurance expenses if the entire property is rented. If you live in part of the property, you must claim only a portion of it.
Mortgage Closing Costs Fees May Be Deducted
Any fees relating to your mortgage may be deducted. This includes closing costs such as legal fees, appraisal fees, and mortgage application fees. Mortgage closing costs can add up to a substantial amounts of money, and being able to claim tax deductions can really help you out. You can claim any fees related to closing costs.
Claim Advertising and Renovations
Often when you purchase a rental property, there are some things you must do before you can rent it out properly. These include renovations, repairs, and advertising. These can be costly, especially if you have no income from tenants coming in yet, but they are usually necessary. You can claim a tax deduction for any fees paid towards advertising your rental property, as well as for renovation and repair costs.
Deduct for Money Borrowed
If you refinanced or borrowed interest to purchase your rental property, you can claim a deduction. You may only claim a deduction for interest borrowed, however, not for your mortgage principal. Additionally, any loans taken out for home improvements such as renovations and upgrades may be deducted.
As you can see, there are many ways to receive tax deductions on your rental property. Knowing what you can claim and what you cannot can be a bit confusing, and you definitely don’t want to make an error on your tax form. For any questions related to rental properties, mortgage closing costs, and mortgages in general, please contact one of our mortgage professionals today.