While cash flow and extra income is typically at the top of the list for most landlords, it’s important to remember tax deductions should also play into why owning investment properties in Denver makes sense. We rounded up the top 5 tax deductions when it comes to owning rental properties. Remember to always speak with your CPA first.

  1. Property Taxes: Property tax is a tax on real estate, and is mostly based on where the property is and how much it’s worth and valued at. Typically, you’re able to deduct the property taxes on your rental property, however it’s your responsibility to remember to deduct it. Hiring a Property Manager in Denver is a great solution to getting the most out of your rental property unless you’re savvy with tax laws and real estate. Keyrenter prepares accounting for owners so they can make the most out of their rental property. This is one of the most common overlooked deduction CPA’s are seeing. It’s important to note that there’s a new limit on the property tax deduction ($10,000, or $5,000 if married filing separately, for property taxes and either state and local income taxes or sales taxes combined) — that limit doesn’t apply to business activities.
  2. Mortgage Interest: “Mortgage interest is tax-deductible for your rental property because it’s a business expense,” says Thomas Castelli, a CPA. Usually Landlords will receive “Form 1098” in January or February of every year from the lender showing the amount of interest that was paid for the year. When you file your tax return, in most cases you take the deduction on IRS Schedule E, which is for residential rental property owners.
  3. Depreciation: The majority of landlords in Denver think of their rental properties as apreciatiating assets, but it should be seen more as a business asset, similar to any item you purchase. Most business assets depreciate (such as a car or piece of furniture). For most rental properties, it’s typically 27 years. In most cases, landlords are able to deduct that depreciation each year on their tax returns. In this case, it’s best to speak with your CPA to see what your rental property in Denver qualifies for. 
  4. Repairs and Maintenance: The cost of repairs to a rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
  5. Miscellaneous Expenses: These things might also be deductible:

-Transportation expenses associated with collecting rent, managing your rental or maintaining it (For example, you are an out of state owner and you want to fly to Denver to repair or upgrade the home during a turnover).

-Advertising and marketing for your rental (If you hire a Denver Property Management Company, you can write off the leasing fee, in Keyrenter’s example, you could write-off the 50% off on month’s rent) 

-Landlord Home Insurance Policy on your rental

-Utilities (such as sewage, trash and water).

-It’s important to know that you cannot write off the following items:

-Travel between your home and the rental property (the IRS considers that commuting unless your home is your principal place of business).

-Uncollected rent (but this depends on the accounting method you’re using for your rental income).

-Lost income because your rental was vacant.

No one should ever purchase a rental property in Denver just for the tax deductions. However, it’s a great reminder to why owning rental properties in Denver is a good idea. Cap rates and cash flow might not affect your income until 2-3 years after you’ve turned your home into a rental, so it’s good to keep these tax deductions in mind until you are generating income on your Denver rental property. Call Keyrenter Property Management Denver to see how we can help maximize your rental income!