When it comes to increasing cash flow for your rental business, one easy way to do this is to make sure you’re getting all the tax benefits & deductions related to your real estate investing. To do this you’ll need to accurately record expenses throughout the year and then report them on your taxes, typically via the deductible expense categories on the IRS Schedule E for rental property.
While tracking all expenses is important for maximizing cash flow, some expenses are larger or claimed more frequently than others, and so will have an outsized impact on your financial performance. We’re here to help you understand the most important deductions available to landlords and their relative impact on real-world portfolios.
Real Estate Investing Tax Benefits & Deductions
In partnership with REI Hub, we crunched the numbers to determine the biggest tax benefits & deductions available to investors and their relative importance. The following data breaks down the deductible dollars claimed (as a % of the total) by the Schedule E category. The larger the weighting, the more that category was used to reduce the actual tax bills of investors like you.
This data summarizes over $60 million in tracked expenses drawn from a broad sample of portfolios across REI Hub’s platform during the 2021 tax year.
|Expenses by %||Expense Category|
|21.1%||Interest Paid (Mortgage + Other)|
|9.1%||Cleaning and Maintenance|
|3.5%||Legal and Professional Fees|
|2.0%||Auto and Travel|
Deducting Depreciation to Lower Your Tax Bills
In addition to operating expenses and interest paid, one of the other major tax benefits & deductions available to rental property owners is depreciation. Depreciation is unlike other expenses because there is no out-of-pocket cost or bill due; the allowable amount is determined by the purchase price of your assets (often called “basis”) and IRS regulations.
You or your tax preparer will calculate the depreciation expense at tax time and add it to your other tracked totals. As a rental property owner, it is important to track the basis of your assets and their accumulated depreciation to claim the correct depreciation deduction each year, as well as to have the necessary records to calculate your gains if you someday sell your property.
How to Track Expenses & Manage Rentals
As you can see from the data above, there are many expenses that you can deduct from your taxes as it relates to your real estate investment. Mortgage, travel, advertising, repairs, insurance, and depreciation are just a few tax benefits you can claim when preparing rental property taxes.
But how to track all these expenses and manage your rentals?
Use RentRedi & REI Hub’s integration of course! When you sign up for RentRedi, you can add on rental property accounting software to easily manage your rentals AND track your expenses. Your subscription is also tax-deductible, lowering your cost by up to 40%.
When you use RentRedi & REI Hub’s integration, you get amazing features such as
- Sync properties & rent received. Automatically transfer properties & payments from your RentRedi profile to REI Hub.
- Link your accounts. Link your bank and credit card accounts electronically for easy, automatic transaction imports.
- Track income & expenses. Use matching rules and payment templates to speed up your bookkeeping.
- Pull reports & statements by property. View your profit & loss or cash flow by property. Produce your portfolio’s balance sheet, Schedule E’s, and more!
You can automatically and seamlessly manage your accounting and properties all from one dashboard. Get free accounts for your accountant or team members as well! Plus, enjoy the tax benefits of being able to deduct these softwares from your taxes!