Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but it doesn’t mean that every expense can be used to lower your tax. There are some things that you cannot legally claim as expenses. What’s more, under the 2017 Tax Cuts and Jobs Act, deductions for rental property owners have been updated. These developments mean that you may or may no longer need to keep a tally on certain expenses, especially those that are no longer allowed. Knowing what Benton rental property owners cannot use as tax deductions can simplify your income tax return preparation.
You have to know the first rule when deducting expenses: you cannot deduct expenses you didn’t actually pay during the tax year. One example is hiring someone to repair a broken window pane 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 repair on the 2020 tax return.
Other non-allowable tax deductions include:
- 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, even if the expense is connected to your business. However, you are still allowed to deduct business meals, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Anything below $25 is still good.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if these memberships are used for business purposes.
- Capital improvements, such as updating your doors or laying down a new floor for your rental house. These costs can still help you with your tax. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These costs should instead be used in 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. Lobbying costs or campaign events aren’t classified as approved deductibles.
- Home office space, unless you use that space 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.
The bottom line is that income tax deductions are complicated and difficult to understand. To make matters worse, the rules change from time to time. While the best source of advice on tax-related issues and questions is a tax professional, there are things you do, which are related to tax, that can maximize both your time and profit. When you hire Real Property Management Hometown, we will guide you through the labyrinth that is tax deductions. You will never have to wonder whether or not you are keeping track of the right items.
Our team of Benton property managers can provide you with the support you need to ensure that each potential tax deduction is taken while staying away from 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. Please contact us online or call us at 501-701-4702 or 501-303-6870 for more information.
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