Rental Property Tax Deductions

Rental properties are a great source of income when designed correctly. Rental Property Tax Deductions, TJ Woods Insurance Agency, Worcester, MATo maximize the profitability of your property, it is important to understand and utilize tax deductions.

Be sure to keep good records of your rental properties and related expenses. Audits from the IRS are common. The number one rule with properties is not to mess with the IRS.

There are more rental property tax deductions besides depreciation. Many of these are often-overlooked by landlords. Here are some quick tips on rental property tax deductions.

The Difference Between Improvement and Repair

The IRS sees a difference between repairing damage to your property and improving your property by renovation (increasing its value). Not everything done to your property is a deductible expense. Repairs, such as replacing a broken window, maintain the value of your property and can be used as a deductible expense in the year you paid for them. Improvements, on the other hand, such as porch or a deck, increase the value of the property and cannot be used as a deduction when you pay for them. Before using repair as a deduction, you must recover the cost of improvement by depreciating the expense over the expected lifetime of your property.

Security Deposits Are Non-Taxable If Returned

If you intend to return the security deposit to the tenant when they leave, it is not taxable. If needed, the security deposit can be retained for repair purposes when the tenant leaves and written off as a deductible expense.

Home Offices Are Tax Deductible

Rooms in your personal house, or unit, are tax deductible from your personal income. This could be an area of your home you use as an office or a storage and/or repair room. Office supplies and furniture are also deductible, so hold on to those receipts!

Labor and Contractors

All wages are deductible from your personal income, regardless if given to an employee (such as a property manager) or a contractor (such as a plumber you hire for a repair project).

Theft and Damage

Casualty losses, when your property is damaged or destroyed, may be deducted for some, if not all, of your loss. Each scenario is usually determined on a case by case basis. The final amount that can be deducted depends on how much of your property was damaged and what was recovered through insurance claims.

Professional and Legal Services

As long as they are used for related purposes, all fees for accounting services, attorneys, property management companies, financial advisors, and other professional services can be deducted from your personal income as operating expenses.


One of the largest deductible expense is interest. For example, interest paid on interest payments, loans used to acquire or improve rental property, and interest on credit cards used for goods and service used in a rental activity can be deducted.


Almost all types of insurance premiums that are used for your property can be deducted, such as liability, theft, flood, and fire insurance. Your employee’s insurance, such as workers compensation and health insurance, can be deducted as well.

If you are currently a rental property owner or are planning to invest in a property, please contact us. You’ll have the peace of mind knowing the talented team at TJ Woods Insurance is there to help you protect your assets every step of the way.

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