PART II–RENTAL PROPERTY
Overall, rental real estate provides more tax benefits than almost any other investment. The deductions listed below are the most common, but you are urged to consult with your accountant and/or the IRS regarding your personal Jersey Shore real estate.
- MORTGAGE INTEREST: This can be a fairly large deduction if you are carrying a mortgage on your rental property. Other interest deductions can be for loans for improving the property and interest on credit cards for goods or services used in a rental-related activity. (Note: It is much easier to maintain records if you keep your personal credit card(s) separate from a business credit card.)
- DEPRECIATION: The actual cost of rental property is not fully deductible in the year in which it is purchased. Residential rental property must be depreciated over 27.5 years.
- HOME OFFICE: If certain requirements are met, you may deduct your home office expenses from your taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. A portion of a workshop used in connection with your rental Jersey Shore real estate may also be deducted.
- REPAIRS: Usually the costs of repairs to rental property are fully deductible in the year in which they are incurred if they are ordinary, necessary, and reasonable in number. Examples of deductible repairs include repainting, fixing gutters, leaks, or floors, plastering, and replacing broken windows.
- INSURANCE AND LOSSES: You can deduct the premiums you pay for almost any insurance for your rental Jersey Shore real estate. The list generally includes fire, theft, and flood for the property itself, as well as landlord liability insurance. (Note: If you have employees, you may also deduct their health and workers’ compensation insurance.) If you sustain losses due to fire, flood, or theft, you will most likely be able to deduct at least part of the loss, depending on the extent of damage and your insurance coverage.
- ADVERTISING: Expenses related to advertising your rental are deductible.
- TRAVEL: If it is necessary for you to travel a long distance for rental activity, you can typically deduct your airfare, hotel bills, meals, etc. Make sure that you claim only those costs directly related to your rental. The IRS scrutinizes these types of deductions carefully, so be sure to carefully document your expenses. If your travel is relatively close, you use your own vehicle, and your travel is related to your rental property, you can either take a standard mileage rate deduction or keep records for related vehicle expenses (gas, upkeep, repairs). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.
- LEGAL AND PROFESSIONAL SERVICES: Expenses paid to an attorney for an eviction, a property management company, tax advisors, employees and independent contractors, etc., are often deductible as they are considered part of operating costs.
- EMPLOYEES AND INDEPENDENT CONTRACTORS: Whenever you hire anyone to perform services for your rental Jersey Shore real estate, you may deduct their wages as a business expense. Examples include a resident manager, cleaning service, landscaper, remover of snow or trash, and the like.