Rental Property Tax Deductions

• Most tax deductions, including those not specifically related to rental property, emerge as a result of an expense. It would represent an unrealistic and harsh burden if a rental property owner had to pay for all his expenses related to maintaining and operating the property and then pay taxes on all rental income. Part of these funds are necessary to maintain and repair the property throughout the years. Accordingly, most of these expenses are deductible, including repairs, cleaning, insurance, mortgage interest, management salaries, advertisement and transportation to the building.
  
  

Depreciation

• The property owner can also deduct the expense of acquiring the building itself, as well as its furnishing and fixed systems, such as furnaces and air-conditioning units. Part of the expense of these items is deducted each year until the entire expense has been deducted. Furnishings and appliances depreciate fully in five years. Buildings depreciate fully between 27 to 39 years, depending on use and jurisdiction. Fixed systems depreciate at the same rate as the building, but depreciate independently of the structure, starting when they are installed. Land itself does not depreciate, however.
  
  

Vacant Rental Property

• These items can all be deducted, whether the unit is occupied or not. As long as the property is available to be rented, the deductions are still valid. A unit that is temporarily unoccupied may also present an opportunity to perform extensive repairs or maintenance. There is a distinction between repair and improvement, however. Repairs may maintain the value of the property, but they do not materially augment it as an improvement would. Similarly, a unit that is not available for part of the tax year may incur expenses that are deductible if it becomes available for rent during the same year.
  
  

Disqualifications for Deductions

• Property that remains unavailable for rent for the entire tax period does not qualify for deductions related to its maintenance. Also, while high maintenance expenses or low occupancy may greatly reduce the tax obligation of the owner, deductions cannot exceed income. A net loss for one property may or may not be used to offset gains or profit from another property, depending on how the ownership of the venture is legally structured, such as a sole proprietorship, limited liability company or a corporation.