The Tax Advantages of an Investment Property

by Carol Deeb, studioD

Buying an investment property can have tax advantages for you. The federal government allows you to deduct certain rental costs and expenses from your annual income, which can lessen your tax burden. It is is important to know what you can deduct in the calendar year that you incur it, and what must be spread over many years to avoid errors when completing your income tax return. Use Form 1040 Schedule E to claim your deductions for your investment property.


Claiming depreciation on your tax return allows you to recoup the cost of your property over time. The Internal Revenue Service has determined that the useful life of residential real estate investment property is 27.5 years. As of 2011, use Form 4562 to calculate the amount of depreciation that you may claim and record it on line 20 of Schedule E.


You can deduct certain expenses in full in the year that they are incurred. All of the mortgage interest that you spent on your rental can be deducted. If you paid more than $600 in interest during the calendar year, your lender will send you a Form 1098 with the amount that you can deduct on your taxes. Also, expenses, such as property taxes, hazard insurance and legal and accounting fees related to your investment property are tax deductible. Claim these expenses on the applicable lines on Schedule E.

Repairs and Improvements

Repairs that you make to your investment property can be deducted from your taxes.

The cost of repairs that you make to your investment property can be taken as tax deductions to lower your taxable income. Fixing the plumbing, repairing the roof, patching the carpet, changing the locks and painting are repairs necessary to keep a property in operable condition. You may deduct the entire cost of repairs in the year that you incur the expenses. However, if you make an improvement that increases the value, or extends the life of your property, such as adding a room or replacing the roof, you must depreciate the expense and deduct it on your taxes over time. Total your repairs and place the amount on line 14 of Schedule E. Improvements are claimed with depreciation on line 20.


Tax advantages to owning investment real estate include other expenses that are deductible in the year you incur them. The cost of travel related to your property is tax deductible. Document the number of miles you drive for your rental because your personal miles are not deductible. Also, if you you allot a space in your home for the exclusive use of managing your property or storing your files, you may be able to take a deduction. Write the totals for these expenses in the applicable lines on Schedule E.

About the Author

Carol Deeb has been an editor and writer since 1988. Her work has appeared in magazines, newspapers and online publications, as well as a book on education. Deeb is a real-estate investor and business owner with professional experience in human resources. She holds a Bachelor of Arts in English from San Diego State University.

Photo Credits

  • Comstock/Comstock/Getty Images