Real estate is tricky and is usually treated much different than a typical business. This is just one Blog Post and Podcast Episode in an entire guide we put together on real estate taxes.

If you have not checked out our other content around real estate taxes, do so now by visiting: The Ultimate Guide to Real Estate Taxes

Here we are going to be talking about normal operating expenses related to your rental properties.

What Expenses Can I Deduct For Rental Properties?

All too often talking to real estate investors all they think about is depreciation and normal operating expenses but there are so many additional tax saving opportunities that they are missing out on by being so narrow focused.

I want rental property owners to think about expenses as they do a business. If you have valid business deductions you should be taking them. Even if you are producing a loss and even if you are planning to carry forward that loss, your focus should still be to maximize what is legally available to you.

We dug into this topic as it relates to business owners which I recommend you checking out as well, What Can I Deduct As A Business Expense? Essentially it comes down to whether the expense is ordinary and necessary for the rental property and if it is, take it! 

What does “ordinary and necessary” mean? 

• Ordinary
• Common and accepted in the rental property industry.
• Necessary
• Appropriate and required or helpful in operating your rental property.

Basically an ordinary and necessary expense means that it is appropriate and helpful for your rental property. To meet this test the expense does not have to happen often or be a recurring expense (although it can be).

What Are Some Examples of Deductible Rental Property Expenses?

Now that we know what can qualify, lets do a run down of some of the most common expenses we see when it comes to rental properties.

• Advertising
• Cleaning
• Depreciation - We talked about that in this article, How Does Depreciation Work for Real Estate
• Insurance
• Lawn Care / Exterior Upkeep
• Mortgage Interest
• Property Management Fees
• Property Taxes
• Repairs and Maintenance - We talked about that in this article, How Are Real Estate Repairs and Improvements Handled?
• Travel (To Check In on Property)
• Utilities

That is just a list to get started but again think of the ordinary and necessary requirements. Also be sure that you are creating documentation to backup any of these expenses that you are taking. Our biggest recommendation is to simply write on the receipt the details around it, take a picture of it and store it in digital file should you need it down the road.

What Unique Expense Tax Strategies Are Available for Rental Properties?

Much of what we have discussed up until this point are your more common items but I do want to go a little deeper to illustrate some planning opportunities that just add to the power of real estate.

•  Hire Your Spouse to Manage Property (Assuming You Are Sole Owner)
  • This would only make sense if you want to take advantage of things like: retirement contributions, high medical costs, etc.
• Hire Your Children to Manage Property
  • Hiring your children in your business or rental property is one of my favorite strategies that everyone should be utilizing.
  • You can get a deduction and your children potential pay no taxes on that income. You're going to support them anyways, right? Why not get a tax advantage for it!
  • We discussed this strategy further in a previous article, Why Should I Hire My Kids In My Business?, and also go through some of the important things you need to be sure to do to implement this correctly.
• Setup Your Own Management Company
  • This would really only make sense if you are looking to take advantage of a retirement plan, high medical costs, etc. With a typical rental property you cannot fund a Solo 401k or SEP IRA but if you have a management company you can utilize that to help fund it those type of accounts.
  • If you happen to be managing other properties other than your own, then of course this would make more sense. Otherwise you may actually end up paying more taxes than necessary by setting this up.

Again, this is just one Blog Post and Podcast Episode in an entire guide we put together on real estate taxes.

If you have not checked out our other content around real estate taxes, do so now by visiting: The Ultimate Guide to Real Estate Taxes

We also have a full section in our Tax Minimization Program specific to strategies around rental properties!