Did somebody say tax deductions?

Buying and renting out a real estate property is one of the smartest ways to make money. Not only owners benefit from the ongoing income but they also anticipate the capital appreciation of their realty. Investing in a rental property also provides larger deductions and tax benefits than most investments.

Most landlords, however, fail to harvest such benefits. Due to lack of knowledge and bookkeeping skills, most rental property owners overlook tax deductions they could claim and end up paying more than they're required to. They lose their profits to tax time rather than recover some of them which could've maximized their savings.

If you're investing in a rental property, read on to learn several deductible expenses you can claim at tax time.

1. Interest

If you borrow money to purchase a rental property and compensate for other expenses associated with that property (e.g. repair costs), the interests incurred on those are tax-deductible. That includes mortgage and credit card interest payments. Having to deduct interest is just one of the beauties of investing in a leveraged property. In fact, it is the biggest deductible expense landlords can get.

2. Repairs

Let's say you want to purchase a fixer upper property for your rental business. You'll sure be spending on plastering, repainting damaged walls, fixing cracked floors, repairing gutters, fixing leaks, and replacing broken doors and windows. Repair costs, provided they are reasonable, are fully deductible in the same year in which they are incurred.

Improvement costs, on the other hand, are a different matter. Fixing the damages that existed after the property was purchased as well as restoring something beyond its original condition (e.g. replacing a functional wooden countertop with a granite one) are considered as improvements and thus, aren't eligible for tax deductions.

3. Employees' wages

Do you hire anyone to perform services for your rental property? Do you have a resident property manager who deals with tenant-related concerns on your behalf? How about an independent contractor you pay for repair services? Generally speaking, the wages paid to your employees are listed as a rental expense and thus, are tax-deductible.

4. Travel expenses

Do you do a lot of driving and traveling for your rental activity? You perhaps drive often to the hardware store to purchase building repair tools or travel back and forth to your rental building to address some tenant complaints. It's a good thing landlords are entitled to a tax deduction on travel and vehicle expenses.

In the US, the IRS allows taxpayers to either deduct actual expenses (gasoline, vehicle upkeep, and repair) or use the standard mileage rate. Same goes with airfare and hotel bills associated with long distance travel. Taxpayers just have to keep records to back up these claims.

5. Insurance

The premiums you pay for insuring your rental property are also eligible for deductions. These include property insurance (which covers for property damage caused by fire, theft, and flood), landlord liability insurance, and workers' compensation insurance.

6. Legal or professional services

Have you sought professional advice in the process? Sure, you have fees paid to lawyers, accountants, real estate advisors, property management institutions, and other professionals. As long as these fees were paid for the work associated with your rental activity, you can write off these fees as operating expenses.

7. Depreciation of assets

Depreciation refers to the gradual reduction in the value of a physical asset as time passes by, particularly due to age and deterioration. Accountants use the method to calculate and spread the cost of depreciable assets like plant and equipment (buildings, furniture, and fixtures) and capital works (costs of improvements) over their useful life.

Depreciation is listed as a tax-deductible expense. Unlike other expenses which can be fully deducted in the year in which you settle it, you can only recover the costs after several years. However, you can determine now the exact amount of depreciation you can claim on your property by getting a tax depreciation schedule issued by a quantity surveyor.

Author Bio: Sophie Harris is a resident writer for Depreciator, an Australian-based business specializing in Tax Depreciation Schedules. Being an enthusiast of pursuing financial security herself, she writes and shares self-help articles focused on personal finance, tax planning, and property investing.