12 Top Rental Property Tax Deductions
The Airbnb Ambassador & Super Host Coach, “a.k.a. A-Coach,” sat in her office when the phone rang. It was on the Airbnb business line, and she picked it up.
“Good morning, A-Coach here. How may I help you?”
“Hi coach, this is Stacy from your Facebook group. My tax preparer asked for my new Airbnb rental business documents. I am freaking out! I have never run my own business before, and I don’t know what documents she needs. Can you help?”
“Hi Stacy, what a timely question. Every year around tax time, I hear from many frantic Airbnb hosts. Let me explain how business tax prep differs and why your tax preparer asks for your documentation early.
The questions your tax preparer is bound to ask you
“Let me start by asking you some basic business bookkeeping questions. The same ones your tax preparer will ask.
- Have you separated your business from personal bookkeeping? Knowing this means tax preparation is a relatively simple project. Not separating is very painful.
- Are you using bookkeeping software or at least an Excel spreadsheet?
- Do you have business bank accounts (e.g., rental income, rental expenses, and a rental expense debit or credit card?
- Have you created digital rental receipt records or at least stored all your rental receipts in a safe and secure place?
- And most importantly, have you identified and categorized the many IRS tax deductions allowed for your rental property?”
“Wow! I never knew I should be doing all of these things. I have kept the rental business separate. I don’t have bookkeeping software, but I keep all my expense receipts and enter them into Excel. I also set up a bank account that Airbnb deposits into with each booking. And, yes, I have a rental debit card. I don’t make digital expense records. Is that important?”
“I am glad you have started to use good bookkeeping practices. Digital records make it easier to attach the receipt to your bookkeeping entries as proof of the expense.”
“As for your last question about tax deductions, I don’t know anything about what the IRS allows. Am I missing out?”
“Stacy, you have done a great job with your bookkeeping. I cannot tell you how many Airbnb hosts I have talked to don’t do as much as you have. So, congratulations are in order. And yes, if you do not declare your deductions, you are missing out!
Do you want to keep your hard-earned money? Use IRS deductions.
“Stacy, you have spent money making your listing attractive. You have worked hard to keep the place clean and safe. You greet guests, correspond with them, and actively market your site to keep them coming. After all that effort, do you believe that you deserve the best return on your investment?
“Yes, of course. It does take a lot of my time. I know that in the hospitality industry, you don’t get to take a day off!”
“Believe it or not, the government and their tax laws feel the same way. However, it is up to you to document your expenses and know the deductions available. It takes some effort but not that much.
“Stacy, I run a very profitable Airbnb. When I started, I did not do everything perfectly. I have learned that not every tax preparer knows ALL the tax-savings strategies for running a hospitality business.
“We don’t have the time today to get into all the details of each type of deduction. Once you know the details, you can configure your bookkeeping software with rules. These rules will automatically capture and report expenses by the correct category.
Ordinary rental tax deductions to increase profits
Some possible tax deductions rental property owners can take advantage of to reduce their taxes and increase profits.
| Category | Comments |
| Repairs and Maintenance | The costs to repair the rental property is fully deductible. Examples include repainting, fixing gutters or floors, fixing leaks, and replacing broken windows. Make bookkeeping simple by paying these expenses with a rental credit/debit card and from your rental bank income account. |
| Home Office | This deduction applies to space devoted to office work and to a workshop or any other home workspace you use for your rental business. |
| Interest | Common interest examples include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity. |
| Depreciation | The actual cost of a house, apartment building, or other rental property is not fully deductible in the year you pay for it. Instead, you get back the cost of real estate through depreciation. |
| Personal Property | When you “donate” personal property for rental activity, you may deduct a reasonable expense. Such personal property includes appliances or furniture in rental units. |
| Travel | If you keep track of your mileage and drive between different properties, you may deduct travel expenses. |
| Insurance | You can deduct the premiums you pay for almost any insurance for your rental activity. Insurance includes fire, theft, flood insurance for rental property, and landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance. |
| Legal and Professional Services | You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and tax preparation professionals. You can deduct these fees as operating expenses as long as you pay the fees for work related to your rental activity. |
| Supplies | You cannot run an Airbnb listing without supplies. Examples are toilet paper, paper towels, cleaning supplies, guest amenities, coffee, tea, shower products, towels, bedding, hand sanitizer, etc. |
| Property Management | If you hire a service for property management or a property management software tool, you may deduct it. |
| Bank Fees | Bank fees associated with your business account may be deductible. |
| Utilities | You can deduct utilities such as gas, electric, water, phone, snow removal, landscaping, pest control, and others. If you share your home with short-term renters, allocate utilities by the percentage of the total area dedicated to guests. |
Best practice bookkeeping strategies are easy and save you money.
“Stacy, did you ever think that there were so many expense categories? Each expense means less tax to pay and therefore more profit for you?”
“ No, I had no idea!”
“Now, do you see why I asked you about your bookkeeping procedures? Good bookkeeping procedures not only save you time during tax season but save you time AND money through accurately documented legitimate tax deductions.
“A good bookkeeping system can automatically link with your bank, categorize expenses, give you monthly reports, and a yearly tax report for your tax preparer.”
“Thank you so much for your time and simple explanations. You have helped to reduce my tax-related stress about tax documentation.”