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The Top 10 Tax Deductions For Boston Landlords

  1. Mortgage Interest Deduction – This is the largest tax deduction for most individual property owners. A portion of every mortgage payment you make goes to pay down the principal balance of the loan and another portion goes to the bank as interest. The federal government also you to deducted all interest paid to your bank associated with the mortgage. In the early years of your mortgage, interest is a very high percentage of the total payment and will become one of your largest deductions.
  2. Property Taxes – You will receive a write off for property taxes you’ve paid over the last 12 months. You’ll receive a dollar for dollar tax write for this cost.
  3. Local Water & Sewer – If you pay for water/ sewer for  your rental units, this cost is also a tax write off at 100%. If you live in the building you will not count the waster usage for you particular unit in the deduction. For example, if you own a Dorchester 3 family, live on the 1st floor and rent the other 2 units, you’d receive a tax write off for 2/3 of your total water cost.
  4. Common Area Cost – In Massachusetts, as a landlord of a multifamily building you area required to pay for lighting and other “common” area cost of your building. Hallway lighting is the most common expense that falls under this category. This is a cost of doing business for you as a landlord and is 100% tax deductible.
  5. Depreciation Expense – The government recognizes that every year your property (the asset) goes through some sort of wear and tear and slowly loses value. This loss in value (depreciation) is a tax write off for you without any outlay of cash. Most property is depreciated over a span of 29 years. You should consult your tax professional about methods for calculating depreciation.
  6. Home Office Deduction – As a landlord you are technically a business owner. As a business owner you can deduction of portion of your total home expenses as your home office. For example, if you use 1/5 of your home as an office (to run your rental business) and the total cost to operate your home is $1000 per month, you should have a total “home office” deduction of $1200. ($1000/5 = $200 * 12 months)
  7. Cost of Driving to & from your Property – There is a cost to you for driving back and forth to manage your rental property. It’s important that throughout the year you keep a log of your travel. Your accountant can assist you in calculating the exact write off provided for your time on the road.
  8. Systems & Tools of the Trade – Did you buy a snow blower, rakes, hammer, drill or other equipment you planned to use specifically for your rental property business? If so, make sure your tax person is aware of these cost as well.  It’s important to maintain a receipt log during the year.
  9. Credit Card Interest – It’s always a good idea to keep a separate bank account you use strictly for your rental business. This separate bank account allows you to easily keep track (come year end) of what you spent. You should also keep a separate credit card for your apartments as well. The interest the credit card company charges you is also a tax write off.
  10. Property Management Cost – Did you pay a property management company to handle your apartment rentals this year? If so, the company will be able to provide you with the total you’ve paid them in the last 12 months. Also provide this figure to your tax-preparer.

To learn more about the ins and outs of landlord tax deductions, I highly recommend NOLO’s “Every Landlords Tax Deduction Guide”. Click the image below to learn more!