You can improve your profit margin considerably by having a good knowledge about possible tax deductions. Consulting a tax attorney or an accountant is a smart move. This article will outline several of the most common tax deductible items for people who own investment rental property.

There is a definite difference between improvements and repairs, especially when it comes to deductions. Repairs refer to things that you must take care of in order to keep the property in good condition. Repairs are generally tax deductible in the year that they are paid for. Repairs may include replacing a sink, painting, repairing broken steps, replacing faulty plumbing or wiring or fixing holes in walls.

Rental improvements, on the other hand, refer to things that you may do to the property in an attempt to add value to it. Improvements are generally not tax deductible at the time you make them; however, the cost of improvements may often be taken off of any capital gains that you must claim at the time you sell the property, thanks to depreciation. Examples of rental improvements include a new roof, addition of a garage, renovations, addition of a bathroom, or new windows.

The biggest tax deduction that you can take from your rental property is the associated mortgage expenses. Obviously this only applies if you have a mortgage on the property. Any expenses that are incurred to obtain the mortgage are not deductible at the time they are paid, such as any appraisals or commissions. Most interest expenses are deductible. Keeping good records is essential, though you should receive an official Form 1098 stating how much mortgage you paid during the year.

Any travel expenses that you incur over the course of the year that are related to maintaining your rental property are generally deductible, if they are expenses related to property maintenance or rent collection. Traveling to make property improvements are only deductible when the other improvement expenses are deductible—usually at the time the property is sold. One other option does include deducting the cost of improvement related travel as part of the overall depreciation.

When deducting travel expenses, there are two options: deduction of the actual expense or using a standard mileage rate. Calculate both ways to ensure you are maximizing your deduction.

Other deductible expenses that should be carefully documented and reviewed include expenses for property insurance, lawn care, snow removal, property taxes, costs associated with the preparation of your tax return, and losses resulting from theft, or losses related to natural disasters and catastrophes (e.g., earthquake, flood, hurricane, etc.)

Condos and coops have some special rules that apply. Condos may require association fees or certain dues that are designated fees to care for the property that is commonly owned. Recreational areas, lobbies, stairwells and elevators all fall into this category. Condo rental still allows deductions for taxes, interest, repairs and depreciation; but costs associated with improvements are not likely to be deductible. These costs are still deductible as depreciation over the life of the property.

Cooperatives have maintenance fees. When you own a coop, capital improvements cannot be deducted, nor are they deductible as depreciation. Instead, the cost of the improvements must be added to the original cost basis in the corporation stock. It is important to consult an attorney or accountant to make sure these costs are accounted for properly.

Be sure to keep careful records for anything tax related. Any deduction must be supported with receipts and documentation. For assistance, contact a Michigan property management company.