Income tax returns for rental property owners can be complex. There are many expenses that property owners can deduct on their tax returns, but it doesn’t mean that every expense can be used to lower your tax. There are some things that you cannot legally claim as expenses. What’s more, under the 2017 Tax Cuts and Jobs Act, lawmakers have made changes to what can be claimed as deductions for rental property owners. These modifications mean that you may or may not need to keep a record for certain expenses, especially those that have been disallowed. Educating yourself on which tax deductions you cannot claim as a Chicago rental property owner goes a long way to simplifying your income tax return preparation.
The first rule on deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. This is something you ought to know. For instance, if you employed someone to fix the plumbing in your rental home in December 2019, but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repairs on the 2020 tax return.
- Mortgage payments for your rental properties. This is specifically referring to payments made towards the loan principal. Any mortgage interest and property taxes you pay are still deductible.
- Entertainment expenses. It doesn’t matter if the entertainment purchased is related to your business. However, you are still allowed to deduct business meals, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Gifts below $25 are okay.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if these memberships are used for business purposes.
- Capital improvement like replacing old doors or installing a new roof on your rental house. These costs can still help you with your tax. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. You should include these on your personal income tax return instead.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions. You cannot deduct expenses spent on lobbying costs or campaign events.
- Home office space, with the exception of having that space used exclusively for business purposes. It should be truly exclusive. That means that shared equipment— like a family computer— may mean that your home office deduction is disallowed.
Ultimately, income tax deductions are really complicated. They are difficult to understand and are subject to change over time. While tax-related issues and questions are best given to tax professionals, there are things related to tax that you can do to maximize your time and profit. When you hire Real Property Management Chicago Edge, we will assist you in navigating through the confusing maze that is tax deductions. You will never have to doubt yourself whether or not you’re keeping track of the right items.
Our team of Chicago property managers can provide you with the support you need to ensure that each potential tax deduction is taken while not including any disallowed items that might lead to problems with the IRS. With our assistance, you will be confident and ready for success both during tax season as well as throughout the year. Please contact us online or call us at 773-904-7700 for more information.
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