Guide To Tax Deductible Expenses

Guide to​ Tax Deductible Expenses
If you​ own rental property,​ it​ is​ important to​ make sure that you​ understand possible deductions in​ order to​ improve your profit margin as​ much as​ possible .​
As the​ owner of​ rental property,​ it​ is​ always a​ good idea to​ consult a​ tax attorney or​ tax consultant in​ order to​ ensure that you​ have a​ good understanding of​ the​ items which may be potentially tax deductible .​
Below is​ a​ guide to​ some of​ the​ most common items which are frequently tax deductible for owners of​ rental property .​
One of​ the​ most important things which must be understood when you​ are determining what you​ may be able to​ deduct is​ the​ difference between improvements and repairs .​
Many owners of​ rental property commonly make the​ mistake of​ believing that anything they do to​ their rental property is​ tax deductible .​
This is​ not always the​ case; however .​
a​ repair is​ essentially anything that you​ do to​ the​ property in​ order to​ keep it​ in​ good condition .​
As such,​ it​ is​ often tax deductible for the​ year in​ which the​ repair is​ paid for .​
Common examples of​ repairs would include repairing a​ broken toilet,​ painting,​ replacing faulty light fixtures,​ etc .​
An improvement; however,​ is​ something that you​ do to​ the​ property in​ order to​ add value to​ it .​
As such,​ it​ is​ not usually tax deductible at​ the​ time when you​ pay for them .​
That said; however,​ you​ may be able to​ recoup the​ cost of​ improvements by depreciating the​ cost over the​ life expectancy of​ your property .​
Common examples of​ improvements would include adding a​ garage to​ the​ property,​ a​ new roof,​ etc .​
Mortgage expenses are often one of​ the​ biggest and most common tax deductions you​ can take when you​ own rental property .​
Of course,​ this is​ only an​ option if​ you​ have a​ mortgage on​ the​ property .​
It should be noted that any expenses which you​ incur in​ order to​ obtain the​ mortgage are not actually deductible at​ the​ time you​ pay for them .​
Common examples would include appraisals and commissions .​
Once you​ begin actually making the​ mortgage payments; however,​ you​ will typically be able to​ deduct the​ portion of​ the​ payment that is​ paid toward interest .​
It is​ always a​ good idea to​ keep very good records; however,​ you​ should receive a​ Form 1098 from your mortgage company that will detail how much you​ have actually paid in​ interest for that year .​
In some cases,​ you​ may incur travel expenses in​ relation to​ caring for your rental property .​
Keep in​ mind that travel expenses are typically only deductible if​ they are incurred in​ order to​ either maintain your rental property or​ to​ collect rent .​
In the​ event you​ had to​ travel to​ make improvements to​ the​ property,​ these expenses are not deductible immediately .​
Instead; however,​ you​ may be able to​ recover the​ cost as​ part of​ depreciating the​ improvements .​
It is​ important to​ keep in​ mind that you​ usually have two options when it​ comes to​ how you​ can deduct travel expenses .​
You may choose to​ deduct the​ actual expenses or​ you​ may choose to​ take the​ standard mileage rate .​
There are also many other expenses which you​ may be able to​ deduct on​ your taxes .​
These expenses may include insurance,​ lawn care,​ taxes,​ tax return preparation fees and any losses which result from casualties such as​ earthquakes,​ floods,​ thefts,​ hurricanes,​ etc .​
If the​ rental property which you​ own is​ a​ condo or​ a​ cooperative,​ there may be some special rules which will apply .​
For example,​ with a​ condo you​ may pay assessments or​ dues which are intended to​ provide for the​ care of​ property which is​ commonly owned .​
These areas would include recreational areas,​ elevators,​ lobbies and the​ actual building structure itself .​
When renting out a​ condo,​ you​ can typically deduct expenses such as​ repairs,​ taxes,​ interest and depreciation; however,​ you​ cannot usually deduct any expenses which were spent on​ improvements .​
These costs must be depreciated over the​ life expectancy of​ the​ property,​ just as​ it​ would be when you​ own a​ single family rental property .​
With a​ cooperative,​ you​ may be able to​ deduct expenses such as​ maintenance fees .​
Capital improvements are a​ different matter; however .​
You would not typically be able to​ deduct the​ cost of​ improvements and you​ also would not be able to​ depreciate the​ cost .​
Instead,​ you​ would need to​ add the​ cost of​ those improvements to​ a​ cost basis in​ the​ stock of​ the​ corporation .​
If this situation applies to​ you,​ be sure to​ speak with a​ tax attorney or​ tax consultant .​
Always make sure that you​ are prepared to​ back-up any expenses which you​ deduct on​ your taxes .​
These expenses must be carefully documented and you​ will need to​ make sure you​ provide documentation,​ including receipts .​

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