6 Strategies To Save on Taxes for Rental Property Owners

Owning rental properties can be a great way to build wealth, but as a property owner, you’re also responsible for managing the tax implications of your investment. The good news is there are various strategies to help minimize your tax burden and maximize your profits. Here, we’ll explore six effective rental property deductions you should consider to save money when filing your taxes.

1. Depreciation: A Powerful Tax Break

Depreciation allows property owners to deduct the cost of their rental property over time. The IRS sees property as a long-term investment, and it loses value as it ages (even though its market value may increase). You can write off a portion of the property's value annually over a set period (typically 27.5 years for residential properties). This deduction helps offset rental income, lowering your taxable income and potentially saving you thousands in taxes.

However, not all properties qualify, and there are specific rules about what can be depreciated, so it’s important to work with a tax professional who understands the intricacies of depreciation.

2. Home Improvements and Repairs: Deducting Maintenance Costs

Property owners often need to make repairs and improvements to maintain the value of their investment. Whether you’re fixing a leaky roof or updating appliances, these costs can be deducted from your taxable income. However, there’s a distinction between repairs and improvements: repairs are usually deductible in the year they’re made, while improvements (which enhance the property’s value or extend its life) may need to be capitalized and depreciated over time.

By keeping detailed records of all expenses, you can ensure you’re taking full advantage of the deductions available to you.

3. Travel Expenses: Deducting Costs of Managing Your Property

If you travel to your rental properties for inspections, maintenance, or any other reason related to property management, you may be able to deduct your travel expenses. This includes airfare, lodging, and meals. However, travel deductions are only allowed if they are directly tied to your rental property business, so be sure to keep accurate records of your trips, including the purpose of your visits and associated costs.

4. Professional Services: Deducting Fees for Experts

Hiring professionals to help manage your rental property can also lead to valuable tax savings. Whether it’s an accountant, property manager, contractor, or attorney, the fees you pay for professional services related to your rental properties are deductible. This includes expenses like hiring a property management company to handle day-to-day operations or paying an attorney for legal advice regarding a lease agreement.

Remember to save all receipts and invoices for these services to ensure you capture every deduction you’re entitled to.

5. Personal Expenses: Deducting Business-Related Costs

While your personal expenses generally aren’t deductible, there are situations where certain personal expenses related to the rental property can be. For example, you may be eligible for a home office deduction if you work from home managing your rental properties. Similarly, if you use your personal vehicle for business purposes, you can deduct a portion of the costs, including gas and maintenance, based on the percentage of time the vehicle is used for business.

6. Vacancy Costs: Mitigating the Impact of Empty Units

When your rental property is vacant, you’re still responsible for paying property taxes, mortgage payments, and other expenses, but these costs can be deducted. Even though your unit is unoccupied, the costs associated with maintaining it and keeping it in good condition while you search for new tenants can be written off as part of your operating expenses.