One of the benefits to owning rental property in Phoenix is that you can access a number of tax deductions. Talk to your CPA or tax accountant to make sure you’re taking full advantage of the write-offs available. They can offset your rental income and help with your overall tax exposure at filing time.
Here are some of the most common tax breaks that real estate investors can claim.
Maintaining Your Phoenix Rental Property
Investment property owners can deduct any expenses that are directly related to rental property maintenance. If you need to install new floors or replace your roof, those costs can be deducted.
Most owners will budget about 15 percent of their annual gross rental income for routine repairs and maintenance. If you use all of that, you’re looking at a sizeable tax deduction at the end of the year. Just make sure every expense is documented. Property improvements are not tax-deductible. You want to be sure you can demonstrate the difference between your maintenance and your improvements. No one wants to defend a tax deduction in front of an IRS auditor.
Taxes and Mortgage Interest
Another deduction you can take is the interest you’re paying on the mortgage associated with your rental property. This can be a pretty huge savings for owners who have a loan. And, it gets better. Deductible interest does not apply only to your mortgages. Any loans you take out that are related to your rental property can qualify. This includes your credit card interest, as long as you can document that those costs are related to maintaining or traveling to your rental property.
You can also deduct any property taxes that you’ve paid on your Phoenix rental property.
Professional Services Associated with Your Investment
If you’re working with a professional Phoenix property management company, you can deduct the leasing fees you may have paid as well as the monthly management fee. Consider the other professional services you use in the management of your property. These may include insurance advice, legal fees, and accounting costs. If you hire professional managers or pay an attorney and accountant for services related to your properties, these costs are deductible. You can even deduct mileage expenses driving to check on your properties if you need to visit them.
Some out-of-state owners come to Arizona annually to inspect the property and interview the property manager. Perhaps you’re a landlord who happens to arrive in the winter or during spring training games played in the Cactus League. Those costs are still deductible when your reason for travel is your rental property.
Use a professional tax preparer when you’re filing your returns and follow their recommendations. Even those tax preparation fees will count as deductions on your return. It’s extremely important to maintain accurate records and to document all of your tax deductions.
We provide our owners and investors with a 1099 every year to ensure tax filing is easy. If you have any questions about the deductions available to you as a rental property owner or you’d like to talk more about Phoenix property management, please reach out. You can contact us at Bennett Property Management.