More Tax Deductions for Rental Property Owners

The last blog covered the top three tax deductions for rental property owners- mortgage interest, depreciation on real estate, and repairs. Here we will look at two more deductions. IRS Publication 527-Residential Rental Property provides added detail on the available tax deductions. Vehicle Expenses

You can deduct any travel expense you incur to take care of your rental property. This includes going to the hardware store to get cleaning supplies as well as meeting a tenant at the property. When you deduct travel expenses, keep good records. IRS auditors like to take a close look at travel documentation to make sure you have a legitimate expense.

To track vehicle expenses use one of two methods. The simplest is to keep track of mileage and then deduct 48.5 cents a mile driven (this is the 2007 rate; the IRS resets it each year). Alternatively, you can keep track of your actual vehicle expenses- gas, maintenance, insurance, etc…

 

Improvements

The IRS states improvements add to the value of the property and prolong its useful life. For example, replacing a roof falls under improvements, whereas fixing a leaking roof falls under the repairs category. With repairs, you can deduct the cost in the year you make the repair. The cost of an improvement is recovered over time through depreciation.The IRS sets different depreciation schedules depending on the “useful life” of the asset. Improvements are on the same schedule as the property itself, 27.5 years for residential real estate.

While depreciation provides a benefit in the years you have the rental property, when you sell a rental it can come back to haunt you. The depreciation has to be “recaptured” thus you end up paying tax on the amounts you depreciated.?We have covered a few of the great tax deductions available to rental property owners. Others include advertising, cleaning, utilities, tax preparation services. Check with your property manager, some have tax knowledge they can share with you. Also, go to the IRS website to review IRS Tax Publication 527.