Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but you can’t just deduct every payment you make. There are some things you cannot legally claim. What’s more, under the 2017 Tax Cuts and Jobs Act, lawmakers have made changes to what can be claimed as deductions for rental property owners. These modifications mean that you may or may not need to keep a record for certain expenses, especially those that have been disallowed. Knowing what Hyde Park rental property owners cannot use as tax deductions can simplify your income tax return preparation.
The first rule you should be conscious of about deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. Case in point, if you took on someone to repaint some of your interior walls 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 service on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This is specifically referring to payments made towards the loan principal. Any mortgage interest and property taxes you pay are still deductible.
- Entertainment expenses, irrespective of how it’s related to the 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. Gifts below $25 are okay.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if these payments are made for business reasons.
- Capital improvements, like buying new windows to replace your old ones or building a swimming pool on your rental property. 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. You should have these declared in 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. You cannot deduct expenses spent on lobbying costs or campaign events.
- Home office space. There is one exception, and that is when you use that space exclusively for business purposes. It has to be really exclusive. That means if you place a family computer in the room, it 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 tax-related issues and questions are best addressed by a tax professional, there are still things you can do to maximize both your time and profit. When you hire Real Property Management Cache Valley, 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 Hyde Park 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 assistance, you will feel what it means to be set up for success— both during tax season as well as throughout the year. Please contact us online or call us at 435-753-5200 for more information.
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