Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns. That also means that there are some expenses that you cannot legally claim. What’s more, there have been recent changes to what can be considered deductions for rental property owners under the 2017 Tax Cuts and Jobs Act. Because of these changes, you may or may not have to monitor certain expenses, especially those that aren’t allowed anymore. Educating yourself on which tax deductions you cannot claim as a Gallatin County rental property owner goes a long way to simplifying your income tax return preparation.
The first rule you should be aware of about deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. To illustrate, say you hired an electrician to repair your water heater in December 2019, but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repairs on the 2020 tax return.
- Mortgage payments for your rental properties. You can deduct both mortgage interest and property taxes. These are recognized deductibles. What you can’t deduct is the payment made toward the loan principal.
- Entertainment expenses, despite the expense being related to your business. However, you can still deduct business meals, although the limits have changed under the new law.
- Business gifts valued over $25 and given to any one person during the tax year. Anything below $25 is still good.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the goal of making these payments is to help the business.
- Capital improvements like replacing your windows with newer ones or adding a patio to your rental house. These costs aren’t wasted, though. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These have to be included on your personal income tax return.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions. This includes anything you spend on lobbying costs or campaign events.
- Home office space. There is a notable exception, however, and that is if that space is used exclusively for business purposes. It must be fully exclusive. That means equipment that is shared— like a family computer— may mean that your home office deduction is disallowed.
Essentially, income tax deductions are complicated— they are difficult to understand and change over the years. While a tax professional is still the best resource for any tax-related issues and questions, there are still a lot of things you can do to maximize both your time and profit. When you get the services of Real Property Management Bozeman, we will help you make sense of the confusing subject of tax deductions, so that you will never have to second-guess yourself if you’re keeping track of the right items.
Our team of Gallatin County property managers can provide you with the support you need to ensure that each potential tax deduction is taken while removing any disallowed items that might lead to problems with the IRS. With our help, you will be well on your way to success both during tax season as well as throughout the year. Don’t hesitate to contact us online or give us a ring at 406-586-2226 for more information.
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