Are there tax relief programs or tax breaks for rental property owners related to COVID-19?
Just like other small businesses, rental property owners may be entitled to various types of tax relief related to the COVID-19 pandemic.
Property owners who have tenants that owe back rent may qualify for some tax relief, although the rules are complex. In short, landlords may be able to elect whether to pay taxes when rent is earned (or accrued), or when rent is actually received. A legal or tax professional can help you navigate this issue and determine your eligibility for other tax relief specific to your situation.
Rental property owners who employ their own workers to manage or maintain their properties may meet IRS requirements for tax relief specifically for employers. This may include the Paid Leave Credit for vaccines, a credit for sick and family leave, and the Employee Retention Credit.
What tax loopholes should I know about as an owner of a rental property?
Tax loopholes for rental property owners will vary depending on who owns the property, how the property is owned, other investments, and a host of other factors. A legal or tax professional may help you find creative and legal ways to reduce your tax burden, depending on your specific situation. For example, refinancing a property can potentially provide some tax breaks. Additionally, if a rental property was inherited, there might be other significant tax breaks.
Some rental property owners are unclear on, or simply not aware of, the rules governing business income, tax deductions, and tax credits. As a rental property owner, you may be able to deduct certain expenses, depreciate your property over a period of successive years for tax purposes, and claim losses on your taxes to lower your tax bills. We will cover more specific information about potential deductions for rental property owners below.
What expenses are tax-deductible on my rental property?
There are several types of deductions you may be able to take related to your rental property:
- Repairs and maintenance. Necessary and reasonable costs of repairing and maintaining your property to keep it in good condition are deductible expenses. This includes everything from lawn care to fixing plumbing emergencies to painting after a tenant vacates the property.
- Mortgage. You may be able to deduct the interest part of your mortgage payments.
- Utilities. Utility costs that you pay for your rental property, such as heating, electricity, water, or garbage collection, are generally tax-deductible expenses.
- Taxes and insurance. You can also typically deduct expenses related to property taxes, tax preparation, and insurance for your rental properties.
- Employee and independent contractor expenses. If you have a rental property manager, a caretaker, landscapers, or maintenance workers, you may be able to deduct wages paid to them for their services.
While you cannot deduct costs related to improving your rental property, such as putting in a swimming pool, or executing a grand landscaping project, you may be able to depreciate these types of expenses on your taxes, as well as deduct the maintenance costs.
Keep in mind that this list is not all-inclusive. You may be eligible to take other rental property tax deductions, including travel or transportation costs related to the rental property business, advertising costs to find tenants, and more. Your tax professional or a Rocket Lawyer On Call® attorney can help you identify and claim available deductions.
Are losses on my rental property tax-deductible?
Generally speaking, yes. If your rental property suffers storm damage, theft, or vandalism, you may also be able to deduct associated losses. However, that won't always be the case as deducting losses can be complicated. For example, if you rent out part of your home and your home gets damaged, you may not be able to claim the loss against your business income, or you may only be able to claim a portion of it.
How much can I write off on my rental property?
The rules differ depending on whether your rental income is a passive or active business for you and whether the loss is related to your personal dwelling. In many cases, rental property owners are more than passive investors and are actively involved in managing their rental business. If that is the case, losses to a rental property may be fully deductible against income.
How much a rental property owner can write off will always vary. Discussing your specific situation with a legal or tax professional, however, can often save you more on taxes than the services cost.
What deadlines do I need to know about if I own a rental property?
Tax deadlines for reporting rental income and paying any assessed taxes depend to a certain extent on whether you have established a separate legal business entity for the rental business. If your rental income goes into a personal bank account, without a separate business structure in place, then your tax deadline will generally be April 15 each year. This deadline holds true unless April 15 falls on a weekend or holiday, in which case the deadline is extended to the next business day. If you have an LLC, corporation, partnership, or other business entity that receives the rental income, your deadline will depend on your previously determined fiscal year-end, commonly December 31. If you have regular rental income, you may also need to make estimated tax payments throughout the year.
Are there other tax breaks available for landlords?
IRS rules surrounding small business taxes, including taxation of rental property income, can be complicated, and every rental property owner's circumstances are different. If you want help understanding your rental property income tax situation and potential ways to save money on your tax bill, reach out to a Rocket Lawyer On Call® attorney.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.