There are many tax deductions for rental property owners.
Rental property is a popular investment for many reasons, including the tax advantages that property ownership provides. While operating rental property can be expensive, many of the expenses related to the property are tax deductible. Rental property owners should consult with their tax professionals to determine which deductions are applicable for their specific situations. However, having a general understanding of the tax implications can help the owner to identify possible tax deductions.
Interest Payments
Interest payments made on various loans used for the rental property are tax deductible. The largest interest payment made for rental property is typically from the mortgage loan, but there are others. Interest on loans used for repairs to the rental property is also deductible. Credit card interest created by purchases made for the rental property, such as repair materials or cleaning supplies, are also deductible. Any other account used to pay for rental property expenses that accrues interest will also create a tax deduction. For credit cards and related accounts, owners must be careful to only deduct the portion of the interest used for rental property charges.
Repair Costs
The cost of repairs made to the rental property will also create a tax deduction. Repairs must be reasonable in nature and cost to be eligible for a deduction according to IRS guidelines. Some examples of reasonable repairs may include repairs to a leaking roof, repainting walls and replacing defective plumbing components. Rental property owners should note that it is repair costs and not improvement costs that are tax deductible. Improvements are projects that add value to the property, while repairs are projects that only maintain value.
Travel Expenses
Travel expenses incurred by the rental property owner to maintain or manage the rental property are tax deductible. Some examples would be meeting with repair service providers, collecting rent payments and going to the store to buy supplies. Travel expenses related to property improvements are not deductible. Owners may choose to deduct actual costs or use the IRS's standard mileage rate. The IRS standard mileage rate is 50 cents per mile for 2010 and 51 cents per mile for 2011.
Other Deductions
Rental property owners can deduct the costs of office space, equipment and supplies required to operate the property. This may include a dedicated home office. When using a home office deduction, owners may also deduct utility costs for that portion of the home set aside as an office. Insurance costs used to insure the rental property or to insure employees of the business are also deductible expenses. The costs of professional services, including a tax professional, are deductible as well.
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