Deductions and credits are always a hot topic when it comes to taxes. Especially in the world of real estate investing, there are many "grey areas" when it comes to what is and is not deductible. In this blog post, we'll cover some of the lesser-known tax deductions for real estate investors that have made their way into the tax code over recent years.

Are meal costs incurred while traveling to/from my rental properties fully deductible?

If you're driving yourself to a rental property, or flying and taking cabs in between properties, you can deduct 53.5 cents per mile driven or flown. If the trip is overnight, you can deduct the full cost of lodging and meals on top of that as well (up to a certain point, which is discussed below).

What kind of limits exists for meal costs?

The "M&IE" deduction (Meals & Incidental Expenses) has been capped by the IRS for years now at $66 per day and $330 per week. This number was updated in 2013 to reflect inflation, but it's still significantly lower than before. This applies to landlords who are driving themselves to work and eating their meals on the road. This also applies to any other travel-related meal costs, like airfare and hotel costs – so if you're traveling somewhere to visit a property where you don't necessarily plan on spending the night (but still plan on breaking for meals), it's OK.

What happens when we combine the two? What about occasional short-term rentals of my own property?

If you're leasing out a property for a few days at a time through sites like Airbnb, VRBO, HomeAway or others, those income streams are considered rental income and are taxable. If you're driving yourself to/from these properties (or taking cabs, which is a write-off), you can deduct the same M&IE expenses that are permitted for those short-term rentals. If the rental income is significant enough, it could cause you to exceed the $66/day/week cap on M&IE.

Can I deduct points I paid for my mortgage?

While you can't deduct money spent on points when you initially purchase a rental property, if your financial situation changes and you pay points again sometime in the future (either because your loan balance has decreased generally – say through paying off the principal in full – or because you refinanced at a lower interest rate), you can claim that deduction.

What happens when I refinance a rental property?

When you refinance a rental property, any fees or commissions paid are tax-deductible. This includes points and lender fees of any kind, as well as recording fees and other government-related expenses. If you're refinancing out of an FHA loan, you still have to be aware of how it affects your cash flow: the first loan may have come with an interest rate lower than what you'll get on your new loan – but if so, your monthly payment will no longer include mortgage insurance premiums. Those premiums are counted as a part of the mortgage payment, so if your principal and interest payment go down but your insurance payment goes up, you'll see a negative impact on your cash flow.

Can I deduct any maintenance expenses?

If you've outfitted one of your properties with solar panels or a pool, you can deduct 30% of those costs in the year that they're paid for. The same applies to any HVAC equipment or other energy-saving upgrades – these costs are fully deductible as long as they're related to improving the property itself (rather than just the living space).

Can I claim depreciation on my rental property?

Depreciation is a way of measuring the time that your property has been in use and how much wear and tear it has accrued. It's necessary in order to determine your basis for each property, which is the amount you originally paid for it. If you can't deduct any costs at all (like mortgage interest), you can't claim depreciation either.

If we're talking about homes, however, there are two different depreciation methods: MACRS and AMS. Under MACRS, if your home was built prior to 1975, 10% is deductible on the first $100,000 of cost for each year it's owned; this changes to 15% after 1976. If your home was built after 1979, 20% is deductible on the first $100,000 of cost for each year it's owned; this changes to 30% after 1985.

For rental units, AMS depreciation rules apply (the 15-to-30-year depreciation schedules). The difference in those schedules above is that the $100,000 mark for MACRS relates to all homes, while that $100,000 mark for AMS only applies to single-family homes and condominiums.

Am I a good candidate for an LLC?

One of the benefits of an LLC is that you don't pay any regular income tax on the company's earnings. This means that you can take advantage of passive income from your rental properties while keeping your personal income low. However, there is still a capital gains tax that applies to the sale or trade of shares in an LLC. If you're not sure whether an LLC might be right for you, just ask.

Any other tax-related questions? Well, why don't we go over a few…

To begin with, there are several other tax deductions for real estate investors that can help make your investment more lucrative:

Can I deduct renovation costs if we'll be renting out the property?

Yes – but you can only claim 50% of those costs as long as the property is rented out afterward. So if your mortgage payment was $1,500 and you spent $2,000 renovating the home, we get to subtract $1,000 from our loan balance (so you still pay off your house note). Your other half of the money spent on the renovations becomes your income, so you can deduct that loss as well. As long as you plan to rent out the property afterward, this is a no-brainer.

Are any of my financial assets exposure-taxable?

If your taxable IRAs or Roth IRAs are at risk from your rental properties, they're now subject to a new rule that affects certain earnings above $200,000 per year. This is known as the Net Investment Income Tax and it's effective for 2014+. You can avoid this by consolidating those accounts into a tax-advantaged account like an IRA or a 401(k).

Are my rental properties subject to special rules?

There are a few cases where your rental property is more or less exempt from your income tax. If you're in the business of rent-to-own, you're only liable for taxes in those situations where there's no guarantee that you'll be able to sell the property – otherwise, don't worry about it. If you have any profit-sharing arrangements with your tenants, keep them current. And yes, that new 2014 tax rule for certain high earners applies here too.

For more information, you can visit Real Estate Calculators.