As another tax year comes to an end, we highlight ways of saving a few dollars through expenses when you own a rental home in Florida.
House-hunters with plans to rent out their new Florida home will be pleased to learn that the American tax system offers generous tax deductible expenses on rental income. Not taking advantage of these could mean you’re left with fewer dollars to spend during your visits to the Sunshine State.
Most British and foreign homeowners in the tourist hot spot of Central Florida – popular for its theme parks, including Disney, golf courses and leisure facilities – choose to buy in a zone that allows them to rent out their property to holidaymakers. Note, holiday lets are not allowed in every area of Florida, so be aware of this when picking your new property.
House-hunters with plans to rent out their new Florida home will be pleased to learn that the American tax system offers generous tax deductible expenses on rental income.
Holiday lets in Florida usually make a lot of sense: typically, non-resident foreign owners can spend no more than six months a year in the US, so you might as well as make an otherwise empty property earn you some rental income during the remaining six months; the superb climate means the season in Florida is year-round, with demand from international tourists consistently strong; the Disney area, such as Kissimmee, Davenort and the Four Corners, has numerous property management agencies to choose from, each ready to take care of your rentals for you and make the whole process more simple – for a fee of course.
So long as you rent out your property for a minimum of 15 days in a year, most of your running costs can be offset against your tax liability from rental income for that year. Not taking advantage of these favourable tax breaks could be costly. “You could be losing hundreds, if not thousands, of dollars in deductions,” St Petersburg realtor Lisa Cahill, formerly a tax manager, said in a Florida Realtors statement.
So what exactly counts as a tax deductible allowance in Florida? Here’s is a 10-point guide, based on information from the Florida Realtors website.
1) Mortgage interest.
The US tax office, known as the Internal Revenue Service (IRS), allows you to claim all of the mortgage interest that you pay against the income you earn from your rental property.
2) Rentals services and advertising fees
Booking fees charged by rentals or listings services or websites, such as Airbnb or HomeAway, can be deducted as a business expense.
“Any fees that you paid directly as the host are tax-deductible,” said Lisa Greene-Lewis, CPA and tax expert at TurboTax. This is true even if it came off the top and never hit your bank account. In addition to this fee, you can deduct value-added tax.
Any extra money spent on advertising your property, outside of what was offered by any rental or listings service, is also tax-deductible.
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Your electric, heating and water bills are also deductible. For holiday homes, the amount deductible is based on how many days the house is rented out, compared with how many days you used it personally. For example, if the house is rented out for 90 days and used personally for 30 days a year – a total of 120 days – then you would be able to deduct 75 percent (90/120) of the utility costs.
4) Cleaning, gardening and maintenance
“Whether you clean the house yourself or pay a professional cleaning service, the money is tax-deductible,” said Greene-Lewis. This includes cleaning supplies, which can add up, as well as gardening, lawn mowing and other maintenance fees.
5) Repairs and painting
Any bills for repair work, from fixing a broken window to repainting a room, are deductible.
6) Property taxes
Property taxes are deductible, either as personal expenses on Schedule A or deducted as rental expenses, says Cahill.
7) Property insurance
If you need to pay more insurance on your home because you have renters present, you can deduct the extra cost. And even if your property insurance fees haven’t increased, you can still write off a portion of the expense as a business expense.
8) Furniture, linens and food
If you buy new furniture for or provide renters with household items such as linens, curtains, and shower supplies, you can claim a tax deduction for those costs. Ditto for any food or drinks that you provide guests.
9) Municipality services
Some expenses paid to the local government, such as fees for trash and snow removal, are also tax-deductible.
10) Structural improvements
You can deduct the cost or the interest paid on a loan, if you don’t pay cash for structural improvements – like new roofing – made to the property. Depending on the project, you may also be able to snag a home improvement deduction. However, these costs will need to be depreciated over time, meaning you won’t get all the money back upfront but will have to divvy it up over the life of the loan.
If you need to pay more insurance on your home because you have renters present, you can deduct the extra cost.
Whether or not you rent out your home in Florida, or any other State in the US, you will need to make a tax return to the IRS. Finding an experienced tax specialist to assist with all your obligations and paperwork is always advisable; it will ensure you make the most of your taxable expenses. Good luck!
For advice on the legalities of lettings, fill in our enquiry form below. And, to find out more about renting out your US home, read our column on the subject.