Rental Property Tax Advice

Residential homes and other rental property provide significant tax advantges.
Residential homes and other rental property provide significant tax advantges. (Image: residential area image by iChip from

Owning a rental property can provide investors with a large stream of income. But rental properties also offer numerous tax advantages that can further increase the value of the investment. From mortgage interest deductions to property depreciation, rental property owners are eligible for a wide variety of tax breaks depending on their specific situation. Owners should work diligently to take advantage of every tax deduction that they are eligible to use.


Investors new to the rental business may be unfamiliar with depreciation, but it is one of the biggest deductions for rental property owners. Depreciation is a deduction for the reduction in value of rental structures over time. Residential rental property depreciates over 27.5 years. The annual deduction for rental structures is calculated by dividing the value of the structure by 27.5. Other types of rental property will depreciate over different periods of time. Depreciation applies to structures and other equipment only -- and not land.

Cost Segregation

Depreciation can be increased through a process known as cost segregation. Cost segregation breaks down the rental property into smaller units that may depreciate at different rates. For example, while a rental home will still depreciate over 27.5 years, other parts of the rental such as appliances, carpeting and landscaping may depreciate more quickly. An accountant experienced in the cost segregation process can help the property owner determine whether or not cost segregation will be beneficial for her specific situation.

Tax Planning

Tax planning is a year-round activity for owners of investment property. Consulting with a tax professional can help a rental property owner to identify ways to maximize tax deductions for her property. Rental property owners must also stay informed of changes to the federal, state and local tax code that may impact their current and future investments. Though rental property owners may choose to do their own tax preparation to cut costs, a tax professional can typically save the owners a significant amount of money. Investors should also keep in mind that fees charged by a tax professional are tax deductible.

Record Keeping

Meticulous record keeping is important for owners of rental property to capture every available tax deduction. Rental owners should keep all receipts for repair costs and any other expenses related to the maintenance or repair of the property, as well as loan and credit card statements showing payments toward interest. Owners may find that using a separate credit card for rental expenses will ease the process of record keeping, especially in calculating the interest payments made on the charges. Properly kept records will also allow rental property owners to show proof of deductions in case of a federal, state or local tax department audit. A home office, which is also deductible, can help a rental property owner to keep things organized.

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