Now that you understand the difference between current expenses and capital expenses. It's time to discuss deductions. Deductions tend to be looked at with a lot more detail by the IRS. So you should know what you are deducting, and have the 'backup' ready if they ask.
- Interest - This is usually the largest deductible that someone claims. The mortgage interest as well as HELOC interest for loans on repairs or improvements can usually be deducted.
- Depreciation - Although you can't deduct depreciation in just one year, you can spread it out over multiple years.
- Taxes - State, Federal and city taxes, as well as social security and unemployment taxes for employees can usually be deducted.
- Business Related Expenses: Repairs, maintenance, advertising, utilities & even insurance premiums can be deducted as long as they are business related.
- Management Fees - Hiring a property manager, or even an on-site manager can be deducted in most rental situations.
There are many other deductions, and everyones taxes are different. Since I am not a tax professional you ALWAYS want to check with your tax attorney or CPA regarding your specific tax situation.