Do you own any rental property? Real estate investments offer exemptions that can lower your income tax on your profits in addition to the opportunity for capital growth and regular income.

Are you a passive investor or a real estate expert? Your income and losses are managed differently depending on your category.

You can write off various expenses associated with buying, running, and maintaining a rental property. A list of the most frequent tax deductions is shown below.

Mortgage Interest Deductions

According to Thomas Castelli, a certified public accountant (CPA) at The Real Estate CPA firm in Raleigh, North Carolina, "Mortgage interest is tax-deductible for your rental real estate because it is a business expense."

Mortgage application fees, appraisal fees, and commissions are not tax-deductible at the payment time. Instead, your equity in the property is increased by these expenses.

You can still deduct tax on up to $750,000 of secured mortgage debt on your first or second mortgage. The mortgage interest tax rate is deductible as a business expense for investment properties.

Every year, your mortgage lender will send you a 1098 IRS Form that shows how much interest you've paid annually. Your mortgage company should inform you if a part of your payment falls into an escrow account to pay for taxes and insurance.

The mortgage interest rate for residential properties is tracked on Schedule A of the 1040-SR or 1040 tax form, but mortgage interests for rental properties are reported on Schedule E.

Depreciation

The deduction for depreciation is another significant tax deduction. Depreciation can spread out the costs of purchasing (or improving) rental property throughout the asset's useful life. If a rental property meets the following criteria, the IRS enables you to depreciate the property:

• You have the property.
• You use the property for your business purpose or other endeavors that generate income.
• The property has a predetermined life, which means it will eventually wear out, be consumed, deteriorate, lose its usefulness, or depreciate due to natural circumstances.
• You anticipate that the property will last for longer than a year.
• During the same year, the rental property was not put into operation and was eventually disposed of (or stopped being utilized for business purposes).

The Modified Accelerated Cost Recovery System is used to calculate the depreciation on the residential rental place put into service after 1986. The IRS rules for rental property define a rental property's "beneficial life" as 27.5 years; that is how this method amortizes expenses and depreciation deductions of property over that time.

Depreciation can save you money today, but the IRS demands a portion of that savings. Depreciation return taxes are due on the profit if you depreciate rental property and sell it at a higher than its depreciated worth.

Most real estate investors adopt 1031 exchanges to postpone paying taxes, including capital gains and depreciation recapture taxes.

Property Taxes

Real estate or other property you own is subject to property tax, and the location and value of the property have a significant impact on the tax liability.

Property taxes on a rental property are typically deductible; according to Castelli, you only need to remember to do so. He observes that rental owners frequently forget the rental deduction. The property tax deduction now has a new cap ($10,000, or $5,000 if married filing separately, and either federal and local income taxes or sales taxes combined). However, business expenses are exempt from that cap.

You can deduct the entire sum as a business expenditure, depending on your involvement with the property.

Travel Expenses

You can deduct the cost of any traveling you incur to receive rent or maintain your rental property. However, if your trip was intended to make changes, you must claim that amount as a cost of the upgrade.

There are two ways to deduct travel costs: the mileage rate and the actual expenses. IRS Publication 463 consists of the most recent information about the prerequisites and current mileage allowance.

Repairs

Regular maintenance and repairs are necessary to keep your rental property in good condition. IRS regulations state that maintenance and repair costs are typically deductible if you're not required to capitalize them or record the price as an asset.

For tax purposes, improvements receive different treatment. These costs can be written off as depreciation, but they must be capitalized. Examples of modifications to rental properties that need to be capitalized include the following:

• Additions
• Improvements to the plumbing or septic system
• Improvements or renovations to the inside
• Changing out heating and cooling systems
• Wiring improvements
• Replacing the roof
• Security measures
• Landscaping and exterior upgrades, such as driveways and decks

Other Expenses

The following items may also be tax deductible:

• Advertising the rental property
• Home office expenses
• Employees and independent contractors
• Insurance
• Utilities
• Lawn Care
• Losses due to casualties
• Property management fees

Generally, the following items are not deductible:

• Traveling expenses from your house to the rental property.

• Unpaid rent

• Income loss because your rental property was empty.

Should I buy a rental property real estate only for tax deductions?

Most likely not. Robert Mulcahy, vice president of specialized financing at Angel Oak Prime Bridge in Atlanta, warns that it's crucial to ensure that you bring in more money than you're spending each year.

"What would happen if that resident decided to leave? If the tenant quits their job, what happens? "When you carry an additional expenditure that is not giving you any money, the depreciation benefit will be dramatically diminished," he explains.