Your Guide to Rental Property Deductions

Table of Contents

Maintaining a rental property requires you to coordinate many different responsibilities, from maintenance and tenant management to paying property taxes. It also requires accurate record-keeping so that you can properly report all income and expenses on your tax return.

Landlords have unique opportunities to claim property deductions on their taxes. Tax laws frequently change, including the overhaul introduced with the Tax Cuts and Jobs Act of 2017 (TCJA), so property owners need to know exactly what they can and cannot deduct from their rental property income.

This guide will cover what rental property deductions are, how to report them, and give you a rental property deductions checklist to make sure you are deducting everything you can on your tax return.

What Are Rental Property Deductions?

As a landlord, it’s important to understand what rental property deductions you can take when filing your taxes. You must report all your rental income on your taxes each year. All income received from rent payments, security deposits, advance rents, cancellation fees, and more must be reported. But there are ways to reduce the amount of tax that’s due on your rental properties. These income sources can add up fast on your taxes, especially if you own more than one rental property.
 
Fortunately, landlords can deduct the expenses associated with their rental properties to lower their tax bill. Expenses may include
 
First, you can deduct loan interest payments made throughout the year. Property taxes may also be reduced through deductions. Then there is depreciation of the actual building which is used as a way to write off its value over time. Further expenses such as repairs and maintenance costs, mortgage interest payments can be deducted too.
 
Furthermore, depending on where you live, your local government may offer additional deductions for landlords who reinvest their income back into their property (ie in repairs or Capital Improvement Programs). It’s important to familiarize yourself with these kinds of deductions if available in order to get the most out of your investment each year.
 
At the very least, by understanding what deductible expenses are available for rental properties you’ll have a better idea of how much money will end up in your pocket after all taxes are paid!
 
Below we will list deductions you can take on your rental property.
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Rental Property Deductions Checklist

Make sure you know which rental property expense you can deduct to help minimize your tax burden. Here is a checklist of rental property deductions so you won’t leave anything off your tax return.

Checklist of 10 Rental Property Deductions

1. Depreciation

You can deduct the depreciation of your properties on your taxes because they lose value as they age. Internal Revenue Service (IRS) Form 4562 helps you calculate depreciation for each property.

2. Repair and Maintenance Costs

You may deduct the cost of repairs and maintenance to your property. Note that if you pay for a major update, like a new roof, it may be considered a capital improvement that will be reported as depreciation over several years.

3. Utility Costs

The costs of heat, gas, sewer, or trash are deductible if you pay for them for your units.

4. Mortgage Interest and Insurance

Anything you pay in mortgage interest and mortgage insurance on your rental is deductible on your taxes.

5. Qualified Business Income Deduction

You may qualify for the Qualified Business Income (QBI) Deduction, which allows pass-through businesses, like LLCs, to deduct up to 20% of rental income. Your operation must qualify by the IRS as a trade or business and meet other eligibility requirements, however.

6. Home Office Deduction

Some landlords may qualify for the home office deduction, which could apply to a home workspace or workshop that is used for your rental business.

7. Professional and Legal Fees

You can deduct fees paid for professional services you used for your property business, such as an accountant, property management company, or attorney.

8. Property Taxes

Landlords can deduct the property taxes they pay on their rental properties.

9. Tenant Screening Costs

You may have to cover the costs of background checks, credit checks, employment verification, and other screening tasks when approving tenants for your rentals. These costs are deductible.

10. Travel Expenses

The cost of travel-related to your property business may also be deductible. If you travel to a resident’s unit for a maintenance request or to conserve the property, for example, you can make deductions. Make sure to keep records of how the travel was related to your business, including any meetings held or property viewings.

This checklist will help you when completing your taxes each year. Take advantage of every tax break available for your rental property business because your responsibilities as a landlord are time-consuming and expensive. You may want to meet with a tax professional to ensure that you are reporting everything correctly and claiming all deductions available to you.

Plus and minus sign on a block

Things to Know When Reporting Rental Property Deductions

Landlords will report rental income, expenses, and depreciation on Schedule E, Part I of Form 1040. If you have multiple properties, you may attach additional Schedules Es. Rental income is taxed as regular income, so your tax rate will depend on which tax bracket you are in each year. Keep the following things in mind when preparing your taxes.

Self-Employment Taxes

Landlords do not have to pay self-employment taxes, even though they are technically running a business. The TCJA states that rental income is not subject to FICA taxes.

Passive Income Loss Rule

Rental property activities are considered passive activities by the IRS. You can offset passive income with losses from other sources of passive income, such as other rental properties. You cannot, however, use a net loss as a deduction to offset income from a regular job, or other sources of earned income. 

Renting to Friends and Family

Sometimes you might want to avoid renting your property to friends and family. You can still receive rental income from them, but you will likely not be able to take advantage of all the rental property deductions on your taxes.

Deductions

Rental property deductions can be taken for both residential and commercial properties. If you have a mortgage on the property, you can deduct the interest paid on the loan each year.

Keeping Records

It is always wise to keep thorough, accurate records for your rental properties. Doing so will help you report all income and expenses when tax season is here. When reporting rental property deductions, make sure to keep track of all expenses related to the property. This includes mortgage interest, insurance, repairs, and utilities.

Be sure to keep receipts and documentation for all expenses. This will come in handy if you are ever audited by the IRS. each avenue of income you receive throughout the year.

These are a few important considerations when you are getting ready to prepare your taxes. It may seem like a lot of information to handle, but with the right experts on your side, you will be ready to claim all the deductions you can.

Contact Nomadic Real Estate for More Information

The tax laws surrounding property management can be complex and ever-changing. Consider meeting with a property management professional to help you make sense of your obligations and to implement best practices for your property rental business. 

The team at Nomadic Real Estate provides property management services for residential property owners and investors. We help you find peace of mind as we take on the leasing and management work for you. Contact us for more information about your Greater D.C. property management needs.



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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.