5 Expenses from Your Short-Term Rental Properties to Lower Your Income TaxesOct 27, 2021
A lot of investors today are interested in purchasing short-term rental properties across the country. In fact, it’s one of the most profitable businesses in the real estate industry. However, as you earn more, your tax obligations to the IRS will surely increase. So if you’re one of those short-term rental property investors like me who deal with massive taxes, please read this entire article for you to find out your options to lower your tax obligations from your property rental business.
Advertising and Marketing Fees
If you have any type of business, marketing always plays a vital role in boosting brand awareness to your target market or consumers. The same is true for short-term rental property owners. They also need more people to know about what they offer. So marketing and advertising are also part of their big expenses in the business.
It could be establishing a website, running marketing ads online, dealing with sponsorships, and many other ways to market your short-term rental properties to your chosen market. Hence, you have to collect all proof and documentation for these expenses because you can deduct them from your total taxable income at tax season.
Maintenance and Cleaning Expenses
Other expenses you’ll have when you own and run your short-term rental business are from maintenance and cleaning fees. If you buy different cleaning supplies, like soap, shampoo, stain remover, multi-surface cleaner, wipes, and many others, that’s another list of expenses that you need to pay on a regular basis.
Besides that, if you hire a professional for cleaning services, it’s another cash expense from your pocket as well. Also, if there are parts of your properties that need repairs, you also get to hire and pay for someone to fix them. But don’t worry! All of these expenses will be deducted from the aggregate amount of your yearly income taxes. Just make sure you keep all receipts of the purchases you made for these supplies and other proof of these expenses that you can present when completing your tax return.
Besides cleaning and maintenance fees, one big chunk of your expenses is from utilities which include the water bill, electricity bill, Internet Bill, Gas Bill, waste disposal services, lawn maintenance and many others. These will be easy expenses to track and find proof of the amount you’ve paid out for these expenses because you will have a bill to present and include in your documents when filing your return.
Property Renovations and Improvements
If a particular short-term rental property needs repainting, cleaning, and many other things for improvements, it can potentially turn off a prospective client. That’s why one of the reasons why more guests keep on coming is due to the impact of the overall visual or aesthetic quality of the property. Most people want to stay in a place where everything looks new and functional.
That’s why a lot of the property owners are very willing to spend money on renovations. As long as it helps improve the property's overall quality to attract more guests, they want to do renovations whenever necessary. But property owners don’t have to worry about the expenses because these too can be deducted from the total amount of their yearly income taxes and also improves the property value over the long term. One of my favorite benefits of Short Term Rentals over Long Term Rentals is that we get to constantly improve the property so that we don’t end up with deferred maintenance issues that are often common in long term rentals between tenants.
Property Insurance Fees
If you have property insurance, you might be required to pay more if you have guests renting your short-term rentals especially if you desire to have contents coverage. However, this too will be tax-deductible as long as you have the important documents to present to the IRS. Besides that, even if your insurance fees haven’t increased yet, you can still write it off as part of your expenses in your short-term rental business.
Owning and running a short-term rental business in your chosen market will bring you a lucrative income over time. So as your income increases, your taxes will surely rise. That’s why you need to be aware of how to lower your taxes from your property rental business. As mentioned earlier, you have to make sure to provide relevant documents for those expenses so that the total amount you paid for building and managing your short-term rentals will be deducted from your yearly taxable income. Don’t forget all of the tax advantages and return on investment you also get when you own your short term rental property. Advantages such as depreciation, appreciation, principal loan pay down and Debt leverage all combined with these tax write offs will increase your ROI and paper profits and when done correctly can give you an annual cash flow while simultaneously creating a tax loss. Don’t forget to consult with your CPA or tax strategist for further clarification… Feel free to ask me for a referral if you’d like to speak with mine.