How Do Income Tax Deductions Work for Tenants?

According to tax law, the money you spend on rental properties for mortgage interest, repairs, maintenance, and other expenses can be deducted. The law further allows you to deduct the depreciation amount of your property from your effective total rental income, which includes all the money actually earned from the property, in order to determine your "taxable income".

If there are deductible expenses from your income, then you don’t need to pay income tax on that part any longer. The expenses you deduct from your income are called "tax deductions" or “tax write-offs”, which are not taxable.

The key factors while doing tax deduction calculations can be summarized in the following equation:

Tellus TIP:

Please note that people who analyze real estate investments usually do not include mortgage interest as a real estate operating expense; however, it is considered an operating expense for tax purposes.