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What is a Rental Deduction?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
  • Last Modified Date: 17 September 2018
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There are several types of rental deduction, and these may depend upon the agency giving them. First, in most cases, these deductions apply to either businesses or to landlords. Some US states have a rental deduction for tenants, if they rent homes. These homes may need to be subject to property tax in order for the deduction to apply. In most cases, on the federal level, the IRS treats with how businesses or homeowners that rent properties can take a rental deduction or several of them.

For landlords there are several possible ways to deduct amounts earned from rental income. Landlords can take a rental deduction for one or more of the following:

  • Depreciation of property
  • Repairs to property
  • Interest on mortgage
  • Travel to and from property on business-related trips
  • The IRS may also give tax credits to people who rent low income housing, even if only a portion of their total rentals are designed for low income renters.
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Businesses, corporations and partnerships may be able to take a deduction when they rent property. This may be a standard deduction used as part of overhead expenses. Essentially what a company pays in order to house their business reduces the income they make each year. Businesses like property management companies that operate multiple units for rent may also be able to take one or more rental deduction types to reduce overall gross income. These are generally similar to deductions taken by a private landlord.

There are some people who may be able to take a rental deduction while filing personal income tax. Tenants who are independent contractors and who maintain a private office on the premises where they live can deduct part of their rent or mortgage payment. This part is usually the percentage in rent of the home that is used for the private office, and is calculated by dividing square footage of office space by total square footage of the home. There may be an additional credit for a certain percentage of total rent that is applied at the same time. Certain restrictions apply if the office is not solely for business use.

Since tax deductions can change on a yearly basis at the state or federal level, it’s always a good idea to check with franchise boards for the state and country. It’s often argued that renters typically are overtaxed, and that tax laws tend to favor homeowners, and this could change depending upon the political climate and future laws. Working with a knowledgeable accountant is another way in which taxpayers of all types can determine all deductions they are entitled to take, based on individual circumstances.

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