Property rentals are still big business even if many landlords have landed on hard times.  Thos who didn’t overstretch themselves in the Naples Luxury Rental market are still sitting pretty on some prime real estate.

Rentals are a business, and like any other subject to taxes.  We might not like it but we have to pay them.  Tax is due on any and all revenue you receive as income from any source.  In the case of rental property it is any revenue received from the occupancy and use of property.  Income doesn’t just mean rent though, it can also mean rent advances, expenses paid by tenants, fees, and any security deposits you don’t return to tenants.

As with all taxes, there is complicated tax law to consider as well as deductions you may make for expenses.  They are pretty much the same as any other business, because that is what rental income is regarded as, business income.  The deduction of expenses is calculated much the same.  Expenses are classed as costs incurred to “manage, conserve and maintain” the property or properties.

That can include insurance, loan payments, cleaning and maintenance, repairs, and any other expense connected with the running of the business or properties.  Some of the less well known expenses are the costs involved in finding tenants, for example advertising.  Commissions paid to agents if they find tenants for you as well as accountant and legal fees.  You can also claim for depreciation of the property as well as the items within it like fixtures, appliances and furniture.  Surprisingly you can even claim for mileage from your home to the rental property if the journey was necessary.

You have to be careful with some of these because, as usual the IRS has complicated matters somewhat.  For example repairs.  You can deduct the expense of repair to maintain the property, but not if it improves it in any way.  Improvements are viewed as raising the value of the property which would provide material gain.  This cost would be recouped when it came time to sell the property so is not regarded as an expense.

There are also specific rules if you own condominium properties or are part of a co-operative.  You can deduct service and maintenance charges from the income, but not things like assessments to improve the place.  Anything that adds value, even if it costs you is not.  Capital improvements to a co-operative property are also regarded as an investment in the co-operative and are added in value to the bottom line of the company.  Therefore cannot be deducted in expenses.

As with any legal or tax obligation, keeping good, complete and accurate records of everything is key.  You may need to justify the claim and having everything needed to support it will save time and effort when it comes to tax return time.