Questions about tax write off's with a rental property

[Greg Baker]

We recently closed on our first rental property and I'm trying to keep everything organized for our tax professional next January.  Which of the following can be written off?  

1. Pre-purchase - Home inspection and appraisal fee?

2. Closing costs - Lender origination charges, credit report, flood cert, interest, escrows, bank attorney fee, title insurance, record deed, record mortgage, mortgage tax, private attorney fee

3. I'm paying for some minor rehab, can the materials, mileage to home depot, and the cost of the laborers/tradesmen be written off?  

Thanks,

Greg

[Doug McLeod]

Yes, you are off on that.  Money put into repairing a purchased property prior to putting on the market for rent is generally added to the Basis of the property (and the depreciation is based on the Basis - excluding land value).  You'll get to fully deduct mortgage interest, property taxes, insurance, etc. as expenses and you will also get to claim the depreciation expense.  This is (Basis - land value)/27.5 if you are doing straight line depreciation and not breaking out different components for accelerated depreciation.  On a 100k property, assuming the land value is ~15k, this means you get a little over 3k in depreciation.  There is little or no direct relationship between your rental income/expenses and your W2 income in terms of taxes unless you spend enough time to claim Real Estate Professional status and are not excluded from the benefit by having too much W2 income. But your rental expenses and depreciation likely will offset most or all of your rental income, leaving your overall tax burden unchanged and making your rental cash flows mostly tax-free.

PS - Get a CPA.  I am not one and I could well be off on what I just told you, but that is my current level of understanding/ignorance.  :-)