Is Rental Income Tax Deductible? (Ep46)

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Investment property has some great tax advantages over regular income. Today I wanted to answer the question is rental income tax deductible?

The answer in most cases is yes. But there are some instances where rental income from a property is not tax deductible.

Are you renting the property for under market value?

Let’s say you have a property and the market value of renting that house is $300 a week. You’re renting it to a family member or a friend or you’re just a stand-out guy (or gal) and so you decide to rent it for $150 per week.

That’s half the market value. This may impact or negate the tax deductibility of that property and so that rental income may not be tax deductible.

Speak to a professional about whether or not you can claim expenses when you’re renting below market rates.

Are you boarding or lodging?

Let’s say you’re living in your property but you also have a teenage daughter who is living there while she studies. She’s paying you board each week to live in the property.

The government considers boarding or lodging a domestic arrangement. Therefore it isn’t tax deductible income and you can’t claim the expenses on the property.

So what can you claim?

I did a whole post and video about exactly what expenses you can claim. I also did a video about some expenses that you can’t claim. I suggest that you go and check those out.

But here’s the general idea. The rule states that anything that is used for the income generating purposes of the property is generally going to be tax deductible.

It’s very likely that the interest on your property’s mortgage will be tax deductible if that’s an income generating property.

Having the lawns mowed or the property cleaned and maintained is all going to be tax deductible – if it is for income generating purposes.

Depreciation

But there are some items and costs that you need to depreciate rather than claim as a tax deduction.

Depreciation works differently depending on what the product is that you’re trying to depreciate. I suggest that you check out my video on depreciation in order to get a better understanding of that.

So is rental income tax deductible? The answer in almost all cases is yes.

But I do suggest that you see a professional tax accountant in order to understand whether or not the rental income from your property is going to be tax deductible. Every situation is different and they can look at your situation specifically and answer for you whether or not your property is going to have tax deductible income.