Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns. The reverse is also true, that there are some expenses you cannot legally claim in your tax returns. What’s more, under the 2017 Tax Cuts and Jobs Act, deductions for rental property owners have been updated. 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 Bar Harbor rental property owners cannot use as tax deductions can simplify your income tax return preparation.
The first rule you should be aware of about deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. To illustrate, say you hired an electrician to repair your water heater 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 repairs on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. You can deduct both mortgage interest and property taxes. These are recognized deductibles. What you can’t deduct is the payment made toward the loan principal.
- Entertainment expenses, even if the expense is connected to your business. However, you can 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 the purpose of these expenses is for the growth of the business.
- 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 have to be included on 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. Any expense on lobbying costs or campaign events is not allowed.
- Home office space. There is a notable exception, however, and that is if that space is used 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.
In the final analysis, income tax deductions are a complicated matter, changing over time and difficult to understand. While a tax professional is still the best resource for any tax-related issues and questions, there are still a lot of things you can do to maximize both your time and profit. When you get Real Property Management Acadia to work with you, we will assist you through the disorienting haze of tax deductions so that you will never have to be unclear and unsure of whether or not you’re keeping track of the right items.
Our team of Bar Harbor property managers can provide you with the support you need to ensure that each potential tax deduction is taken while removing 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. Don’t hesitate to contact us online or give us a ring at 207-561-7482 for more information.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
