I have unit that I am paying the utilities (included in the rent) and am considering having the tenant pay them resulting in a lower rent. The question is, is it better to have the utility deduction at tax time or the reduced rental income? Currently, the cash flow is minimal, but am I getting more bang for the buck by claiming the deduction?
Thanks,
Kevin
@kevinbuyshouses I’ve generally found that it’s to everyone’s advantage to have the tenant pay as many utilities directly as possible. There are many considerations at play here, but for me it comes down to creating the right incentives.
Rent is a fixed number every month while utilities vary based on headcount, seasonality, the price of heating oil, and many other factors. When utilities are included in a fixed rent amount, the tenant really has no financial incentive to bother turning the lights out or keeping the thermostat set within a reasonable range. Your overall utility costs will generally be higher when the person using the services isn’t responsible for paying the actual costs.
If units aren’t separately metered, it may not be feasible to have tenants pay directly, in which case you’ll need another strategy like allocating actual costs based on headcount or square footage.
You’ll definitely want to check with a qualified CPA, but as a general rule, utilities paid by the landlord are fully deductible against rent received, so the math should work out the same either way.
Thanks Devin. Confirms my thoughts exactly. I’m leaning towards having the tenants pay and streamlining my expenses. Thanks for the info!