![]() Utility companies often will offer a “landlord account” when a property is used as a rental. If the property is vacant for the entire month, $200 in utilities could be deducted as a normal operating expense since there is no tenant to pay for the utilities. When this occurs, a landlord can deduct the actual cost of utilities paid when the home was vacant and waiting for a new tenant.įor example, assume the total monthly utility bill for water, sewer, gas, electric, and trash service is $200. However, there will be times when the property is vacant between tenants and the utilities are still turned on. Utilities in an SFR home are normally paid directly by the tenant. If the monthly utility bill was $150 and each unit of the multifamily property is about the same size, a landlord may only be able to deduct $100 as utility expenses, because the remaining $50 (or one-third of the actual bill) is directly used by the landlord. ![]() In a situation where one of the multifamily units is owner occupied, a landlord could only deduct the cost of utilities used by the tenants. Occupying one of the units as a primary residence may make it easier to qualify for FHA or VA financing rather than having to apply for a rental property loan. Sometimes, a real estate investor will purchase a multifamily property and live in one unit while renting the other units out. Owner-occupied multifamily rental property ![]() A good property management company can advise on which method is customary for the local rental market.Īssuming the gross monthly rent collected is $1,000 per unit, a landlord would record $3,000 as total monthly rental income and deduct the amount paid for utilities based on the actual utility bill, along with other operating expenses and mortgage interest if the property is financed. Some landlords opt for including the utility cost as extra rent charged to the tenant, while other landlords may choose to charge a tenant a single fixed monthly rental fee. If the total water bill averages $150 per month, a landlord may increase the rent by $50 per month per unit to include water as part of the rent. In a situation like this, a landlord will pay for the utilities directly and then recover the cost by factoring the utility expense into the monthly rent.įor example, assume a landlord owns a small 3-unit triplex that has one meter for water service that is used by all 3 units. Oftentimes, utilities, such as water and gas, for a small multifamily property are on a master meter. Let’s look at how utility expense deductions work in 3 different situations: Multifamily rental property Utilities may be a tax-deductible expense for landlords who own both multifamily and SFR property. How to deduct utilities on a rental property Tax deductible utilities and other rental property expenses are reported on Form 1040, Schedule E, Part I.Most utility companies offer a landlord account that allows services to be transferred into a landlord’s name when a property is in between tenants. ![]()
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