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, under the 2017 Tax Cuts and Jobs Act, they have made edits to what can be considered as deductions for rental property owners. These adjustments mean that you may or may not have to keep tabs on certain expenses, especially those that have been taken off the list. Knowing what Summerville rental property owners cannot use as tax deductions can simplify your income tax return preparation.
You need to know the first rule on deducting expenses, that 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. This means any payment you make toward the loan principal. These aren’t deductible. However, mortgage interest and property taxes are both still deductibles.
- Entertainment expenses. It doesn’t matter if the entertainment purchased is related to your business. However, you may still 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. Gifts that don’t go over $25 are all right.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if these memberships are used for business purposes.
- Capital improvements, such as replacing broken windows or adding a new car garage to your rental house. These costs don’t go to waste, though. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. These would better be included on your personal income tax return instead.
- 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, 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.
Ultimately, income tax deductions are really complicated. They are difficult to understand and are subject to change over 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 work with Real Property Management Charleston, we will assist you and guide you through the confusing maze of tax deductions so you will never have to wonder whether you are keeping track of the right items.
Our team of Summerville property managers can provide you with the support you need to ensure that each potential tax deduction is taken while taking away 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 843-900-4061 for more information.
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