Deducting Property Taxes for Rental Property in 2018: A Comprehensive Guide
When it comes to tax deductions for rental property, property taxes can be a significant line item. Since 2018, the treatment of these taxes has remained consistent with previous years, but it's crucial to understand how they are handled and the rules that apply to them. This guide will help you navigate the process, ensuring you take full advantage of allowable deductions.
Understanding Property Taxes and Rental Income
Property taxes can be deducted from rental income, but it's important to note that they are not considered part of the itemized personal deductions on Schedule A. Instead, they are directly related to rental income and are deducted on Schedule E. This schedule is used for rental income and expenses, as well as determining if the property is a loss or a profit. Property taxes are an essential aspect of this process, as they are 'ordinary and necessary' expenses incurred to produce or earn rental income. They can be fully deducted, but they must be claimed correctly on your tax return.
Deducting Property Taxes on Schedule E
According to the Internal Revenue Code (IRC) Section 212, all 'ordinary and necessary' costs incurred in order to produce or earn income are deductible. This includes property taxes related to rental properties. The IRS provides detailed instructions on Schedule E, which is specifically designed for rental income and expenses. The inclusion of property taxes on this form ensures that they are properly accounted for and can mitigate the overall tax liability of the rental property.
It's important to note that if you have a second home that you live in part-time, the rules may be different. In such cases, you may need to follow specific guidelines for deductions, as outlined by the Internal Revenue Service. For most rental properties, however, property taxes are deductible under Schedule E. This means that you can claim these expenses against the rental income, thereby reducing your taxable income and potentially lowering your tax liability.
Other Deductible Costs and Considerations
Property taxes are not the only deductible costs associated with rental properties. Other options include mortgage interest, maintenance and repairs, and property management fees. Any mortgage amount, whether it's for personal or business purposes, and the money used to buy, build, or substantially improve the home, is deductible. This can further reduce your tax burden and maximize your deductions.
For properties that do not generate enough income to offset the expenses (i.e., they are not cash flow positive), the deductibility of the expenses becomes more nuanced. However, if the income from the property does not exceed the expenses, the situation is similar to the previous year. The rules have not changed significantly with the introduction of the new tax law.
Seek Professional Advice
While the general guidelines are clear, the tax laws can be complex, and there may be specific details that apply to your unique situation. It's advisable to consult with a tax professional, such as an accountant, to ensure that you claim all eligible deductions and avoid any potential issues with the IRS. They can provide specific guidance based on your tax situation and the instructions provided by the IRS.
If you have any questions while completing your tax return that the instructions do not answer, do not hesitate to reach out to an accountant. They can provide the clarity and assurance you need to file your return correctly.