Owning rental real estate in Fredericksburg, Virginia, can be highly profitable, but it comes with many expenses related to upkeep and management.
Partnering with a property management company can be especially beneficial, as their fees are expenses that you can deduct when you report rental income on your taxes.
Under both federal and Virginia law, landlords can claim deductions for necessary costs tied to maintaining the property, collecting advance rent, and managing rental agreements.
Here’s a look at the top tax breaks available to landlords in Fredericksburg, VA:
Mortgage Interest
One of the biggest deductions for any rental property business is mortgage interest. You can deduct mortgage interest from the interest payments made during the year, including fees called loan origination fees.
If you’re a cash-based taxpayer, you only deduct actual expenses in the year you pay them. Good records will help you claim these deductions properly on your tax return.
Property Taxes
In Virginia, property taxes are qualified rental expenses, though local benefit taxes for area improvements aren’t deductible. If you pay sales tax on personal property like appliances or furniture for your rental, you can include it in your operating costs.
Repairs, Maintenance, and Improvements
Maintenance and repair costs are ordinary and necessary expenses you can deduct in the year they’re paid.
However, capital improvements, such as a new roof or remodeling, must be depreciated over time based on the purchase price and fair market value when the property was placed in service.
Depreciation
Your rental property deductions also include the depreciation of your residential rental property. While land isn’t depreciable, buildings and improvements are written off over 27.5 years.
This helps recover the cost of your rental property expenses over time, reducing taxable income even if the tenant pays for utilities or other services.
Professional Services
Hiring property managers, an accountant, or a qualified tax professional is a smart move for any rental property owner. The property management fees, legal fees, and professional fees you pay for managing your rental activity are fully deductible.
Services from independent contractors for repairs, cleaning, or advertising can also count toward your deductible rental expenses.
Insurance Premiums
All insurance premiums for your rental—including landlord liability, fire, flood, or umbrella policies—are tax deductible.
Given Virginia's risk for coastal storms, robust coverage is essential. Fortunately, the expenses paid for protection qualify as operating expenses.
Utilities and Other Operating Costs
If you cover utilities, trash removal, or landscaping, these are deductible expenses. This doesn’t qualify if the tenant pays for these bills directly.
Even if you collect rental income that includes utility costs, you can still deduct what you’ve paid as part of your gross rental income calculation.
Travel and Advertising
Travel related to your rental property business is deductible, whether you're checking on a vacation home or collecting the final rent payment. Be sure to track mileage, lodging, and meals.
Plus, advertising costs for finding tenants help reduce taxable income when you report income from your rental.
Uncollected Rent and Security Deposits
Although you generally deduct the rent you receive, you can also deduct uncollected rent using the accrual method.
Remember, security deposits aren’t taxable unless you keep them for lease violations — then they count as rental income taxed.
Optimize Your Tax Strategy
Fredericksburg, Virginia property owners should work with a qualified tax professional to maximize rental property tax deductions. With the right strategy, you can reduce your modified adjusted gross income, benefit from potential qualified business income deductions, and minimize the amount you pay in taxes on your rental income.
Keep detailed records, separate personal expenses from business transactions, and take advantage of every opportunity to improve your bottom line.
Maximize your savings with Gem Realty Group. Our expert property managers know the ins and outs of rental property tax deductions and can help you track every deductible expense, from maintenance costs to mortgage interest.
Let us handle the details so you can focus on growing your rental business. Contact us today and see how our expertise can boost your profit!
Additional Resources
Understanding Your Rental Property Income Statement
How to Create Long-Term Stability for Your Fredericksburg, VA, Property Management Company
