Real Estate Rental Tax Deductions

Disclaimer: I am not a tax attorney or CPA, this is meant to be general advice. Be sure to consult a tax professional before proceeding.

The most substantial items that become tax deductions are:

Mortgage Interest

Property Taxes

Repairs and Maintenance

Home Improvements

Depreciation

Other

Mortgage Interest – There is talk in Congress of eliminating the mortgage interest deduction as a way to balance the budget. Until that happens, investors continue to get the awesome benefit of tax deductible interest on their investment properties just as they would on their residence. At the end of the year the bank that holds your mortgage, if you have one, will send you a form detailing the

amount of interest you have paid on your loan for that year. Generally speaking, that entire amount is tax deductible. The same can be said for the property taxes that you pay. Most of the time taxes paid to one jurisdiction are deductible in others.

Property Taxes – Any taxes that you pay to the county / city through your regularly billed property taxes are considered deductible on your Federal income taxes.

Repairs / Maintenance – When you decide to turn your property into an investment, the way that improvements are handled changes. Repairs and maintenance are generally considered an “expense” which is tax deductible, in full, in the year in which it occurred. An example of this would be hiring an appliance repair person to fix your washing machine.

Home Improvements – Improvements to the home like purchasing

all new appliances are generally considered to be a depreciable expense. The government expects these improvements to last longer than one year, and they ask that you spread the cost of these improvements over a 5 year period. There will be more on depreciation, but in general if it’s something that is an investment into the property that will be lasting, it has to be depreciated versus expensed. This is an important tax consideration you will want to discuss with your tax person.

Depreciation – Depreciation is the way in which most investors can show a paper loss for tax purposes, but not actually have lost money on their investment. What the IRS is saying is that there is a finite period in which the personal property and building will be useful. Therefore, investors should be allowed to depreciate those assets over the time of ownership.

There will be a separate post just on Depreciation because of its complexity as well