Top Tax Deductions for Investment Property Owners

Since we are in tax season, I thought it best to review some of the top tax deductions for real estate investors. When filing your taxes, don’t forget to take full advantage of all the deductions available for owners of rental property.

Mortgage Interest – The interest owed on a loan used to acquire or improve an investment property is a tax deductible expense. In addition, interest payments on credit cards for goods or services used in rental activity is also deductible.

Depreciation – Residential income property can be depreciated over 27.5 years; commercial 39 years. Depreciation is often the largest deduction a real estate investor can take.

Repairs - The cost of repairs to rental property are fully deductible in the year in which they are incurred. The repairs must be ordinary, necessary, and reasonable in amount. Some examples of deductible repairs include painting and fixing broken fixtures. Replacing a roof would not be considered a ‘repair’, but rather a capital improvement and the cost associated with replacing the roof would increase the basis of the property.

Travel Expenses - Property owners are entitled to deduct the costs associated with traveling to and from the rental property. The drive to a property to deal with a tenant complaint would qualify as a tax deductible expense. Likewise, flying to Hawaii to repaint a rental property would also qualify as a tax deductible expense. For overnight travel, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction. Please note however that IRS auditors closely scrutinize deductions for overnight travel. To stay within the law and avoid unwanted attention from the IRS always properly document long distance travel expenses.

Home Office – Landlords may be able to deduct home office expenses provided certain minimum requirements are met.

Employee, Independent Contractor and Professional Services Expenses – Fees paid to gardeners, painters, attorneys, accountants, property management companies, real estate investment advisors, and other professionals can be deducted as operating expenses as long as the fees are paid for work related to the rental activity.

Advertising – Any advertising costs associated with marketing the property for rent or for sale can be deducted.

Insurance – Insurance premiums can be deducted for almost any insurance policy related to the rental property. This includes, fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

Vacant Property -Keep in mind: if the property is vacant either because the property is either up for sale or is waiting to be re-tenanted, the owner may still be able to deduct all ordinary and necessary expenses (including depreciation) for managing, conserving and maintaining the property while the property is vacant.

This is offered as information and not to be construed as legal advice. Always check with your CPA or attorney as to your needs.