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What are Common Investment Property Tax Deductions?

By K. Kinsella
Updated Feb 28, 2024
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People who own rental properties can use investment property tax deductions to reduce their taxable income. Investment property tax deductions are business expenses, and tax laws in many countries enable people to reduce their taxable income by the amount of their business related expenses. Businesses that own rental properties can also benefit from investment property tax deductions by reporting the costs involved as operating expenses.

Individual property owners with mortgages on rental properties can use mortgage interest payments as investment property tax deductions. Consequently, some investors only finance rental properties with loans on which they can pay monthly interest-only payments for extended periods of time. Investors can also deduct the cost of property tax on investment properties as a business expense from their taxable income.

People who own investment properties are required to buy property insurance and can typically use premium payments as tax deductions. Investors who want to protect themselves from lawsuits related to injuries that befall their renters often purchase liability insurance, and laws in many countries enable them to also deduct liability insurance premiums from their taxable income. Companies that employ property management staff to handle the day-to-day running of investment properties can use employee health care premiums as tax deductions.

When an investor buys a rental property, the actual cost of the building is a business expense. Laws vary on how people can deduct property purchases from their taxable income, but typically investors can deduct a certain portion of the property price over a set number of years. Tax deductions involving mortgage principal payments are often complicated, but laws in many countries also enable property owners to deduct these payments from their taxes.

Investors often purchase properties in need of repair for below market prices and spend significant sums of money renovating the properties prior to agreeing lease agreements with renters. Home repairs and renovations are usually tax deductible. People who hire contractors to complete some of the renovations can use the contractors' wages as tax write offs, and they can also deduct the cost of insuring workers during the renovation process. Repairs are typically an ongoing expense for investors and are usually tax deductible, as are costs related to cleaning and landscaping rental properties.

Tax laws are revised regularly, so investors need to consult certified tax consultants to ensure their investment property tax deductions are permissible. Property owners must maintain records of tax deductions because tax authorities can audit landlords at any time. People who do not have receipts and other documentation to substantiate the claimed deductions face hefty tax penalties.

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