There are various key tax deductions for rental property owners that you should be aware of to lower your taxable income and enhance your profitability. In general, tax deductions are claimed for the tax year in which the expenses were incurred. It is critical to get the advice of a tax professional or accountant to ensure that you understand the exact rules and requirements for each deduction and that you maximize your benefits within the legal framework.
Alternatively, non-allowable tax deductions are costs that cannot be deducted to lower taxable income. Personal expenses unrelated to the rental property, such as personal trips, clothing, or groceries, are examples; as well as:
- Monthly mortgage payments. While mortgage interest and property taxes are both deductible, loan principal payments are not.
- Even when the entertainment is connected to your business, entertainment costs are not deductible. Business dinners, on the other hand, are still deductible, though the restrictions have changed under the new rule.
- Business gifts valued over $25 and given to any one person during the tax year are not deductible.
- Club dues, such as subscriptions to gyms, country clubs, or other clubs, are not deductible even if you are entertaining for business purposes.
- Capital improvement costs such as installing new windows or a new roof on your rental house, must be depreciated not deducted.
- Other taxes, including state income taxes and local sales tax. These should be included 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, including anything spent on lobbying costs or campaign events.
- Home office space unless it is used exclusively for business purposes. Even having a family computer in the room may mean that your home office deduction is disallowed.
In the end, income tax deductions are complex and might be difficult to fully understand. While a tax professional is the best source of assistance on any tax-related difficulties or questions, there are steps you can take to maximize both your time and earnings. When you engage Real Property Management Honolulu, we will guide you through the perplexing landscape of tax deductions, so you never have to question if you are keeping track of the proper items.
Our team of Pearl City property managers can provide you with the support you need to ensure that each potential tax deduction is taken while steering clear of any disallowed items that might lead to problems with the IRS. With our help, you can feel confident you’re setting yourself up for success both during tax season as well as throughout the year. Contact us online or call us at 808-445-9500 for more information.
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