|When tax season arrives, everyone starts looking for potential tax breaks they can take advantage of. These tax breaks have the ability to lower your tax bill and save you money overall.
When it comes to renting, tax breaks for renters and landlords exist for those eligible to receive breaks from the Internal Revenue Service (IRS). Understanding these tax breaks if you are a renter or a landlord is critical, so that you can keep as much of your money as possible when filing your taxes.
Tax Deductions for Renters
Tax deductions for renters might be difficult to obtain, but there are still tax break opportunities you may be eligible for.
Certain states have tax breaks for people who rent property. These states have a renterís tax credit that makes it possible for renters to reduce the amount of taxes they have to pay to the state. States that offer some form of renterís tax credit include Maryland, California, Indiana and Michigan; however, laws are dynamic by nature, so itís worthwhile to check with your stateís department of revenue to see if new legislation has been enacted that you can benefit from.
In addition to some states offering tax deductions for renters, there are also some local governments that provide tax incentives to renters. Some low-income individuals qualify for tax credits or other financial subsidies through their local government. Again, itís worthwhile to check with your local tax authorities as rules will vary significantly.
Tax Deductions for Landlords
There are no federal tax credits or tax deductions that are available for renters of property. However, donít overlook the tax deductions for landlords. The poor housing market has meant that many are unable or unwilling to sell their homes, and so the volume of rental properties in many markets has increased significantly. Your landlord might be willing to reduce your rent to keep a good tenant. This is a tax deduction for renters that is worth asking about.
Landlord Tax Breaks
Although renters donít get a lot of tax breaks, landlords do have access to several tax benefits. If you are a landlord, maximizing these tax benefits helps offset some of the income that you receive from rent and possibly from other sources.
Depreciation is one of the biggest tax deductions for homeowners. When you own a piece of rental property, the IRS allows you to deduct depreciation on the property over its useful life. The theory is that the property continues to decline in value and since it is an investment, you get to deduct this depreciation from your taxable income. For example, with a regular house, the useful life is considered to be 27.5 years.
Another big tax deduction for landlords is the interest deduction. This deduction allows landlords to deduct any interest that they pay for the rental property. For example, if the landlord takes out a loan to pay for repairs on the property, he can deduct the interest as a business expense.
If the landlord uses a credit card to buy supplies for the property, the interest charged on that portion of the credit card balance can be deducted from taxable income. The landlord can also deduct the amount of interest that he pays on the mortgage for the rental home.
Repairs on the rental property can also be deducted by the landlord. For example, if you have to fix the plumbing in the house, you can deduct the entire amount of money that you have to spend on the repairs.
When youíre a landlord, there is a good chance that youíll have to do a little bit of traveling from time to time. This is true whether you have property that is located across town or across the country. Sometimes you have to travel over to the property to put a ďFor RentĒ sign in the front yard. Other times, you have to drive over to collect rent or to talk to the tenants of a property. If youíre traveling for business purposes for the rental property, you can deduct those travel expenses as long as you keep the receipts for itemized deductions.
The other costs that you incur for the property may also be eligible for deduction. For example, if you paid insurance premiums for the house, you can deduct the cost of those premiums. If you pay a property management company, you can also deduct those costs. Legal fees for the property are also eligible for deduction.
If you use an area in your house as a home office for the purpose of doing business for your rental properties, you can also take a home office deduction. With a home office deduction, you get to deduct a portion of all of the bills that you pay for your own house. This is done by calculating the square footage of your office in relation to the rest of your house and then deducting that percentage from all of your house bills. For example, you can deduct a percentage from your mortgage, from your utilities and from your homeowners insurance costs.