What are Rental Expenses?
Rental income is taxable but you are allowed to reduce your rental
income by subtracting rental expenses.  These expenses, or
losses, include depreciation, mortgage interest, and repair and
maintenance costs.

When to Deduct Rental Expenses
You generally deduct rental expenses in the year that you pay
them.  Real estate rental expenses include the following:

Real Estate Taxes
You can deduct real estate taxes on your rental property.

Depreciation
You can begin to depreciate rental property when it is ready and
available for rent to tenants.

Pre-rental Expenses
You can deduct your ordinary and necessary expenses for
managing, conserving, or maintaining rental property from the time
you make it available for rent.

Vacant Rental Property
You can deduct your ordinary and necessary expenses (including
depreciation) for managing, conserving, or maintaining the
property while the property is vacant.  You cannot deduct any loss
of rental income for the period the property is vacant.

Interest Expense
You can deduct mortgage interest you pay on your rental property.

Management Fees
These would be fees paid to a company for collecting the rent and
managing the property.

Traveling Expenses to Look After The Properties
If you travel away from home to inspect or repair rental property,
you can deduct the expenses but you will need to show that this
was the primary purpose of your trip rather than vacationing or
other personal purposes.  If you can't prove that the purpose of
your trip was to examine your rental property, the IRS may disallow
the deduction.

Insurance
You may deduct insurance payments (fire and liability) as an
expense.  If you have a premium that is more than a year, you can
deduct the part of the premium payment that will apply to the current
year.  You cannot deduct the total premium in the year you pay it.  If
payment is made in one year for insurance covering a period
longer than one year, you must amortize and deduct the premium
over the life of the policy.

Tax Return Preparation
You may deduct the part of a tax preparation fee you paid to
prepare part 1 of Schedule E (form 1040).  You can also deduct, as
a rental expense, any expense you paid to resolve a tax
underpayment related to your rental activities.

Expenses for Rental Property Sold
If you sell your property you held for rental purposes, you can
deduct the ordinary and necessary expenses for managing,
conserving, or maintaining the property until it is sold.

Personal use of Rental Property
If you sometimes use your rental property for personal purposes,
you must divide your expenses between rental and personal use.

Personal Services
You cannot deduct the cost of your own labor as an expense.  For
example, if you paint your rental unit, or install a lock yourself
instead of hiring a painter or locksmith you cannot deduct the cost.
However, if you hire a non-owner (such as your child), you can
deduct the payments.

Repairs and Improvements
You can deduct the cost of repairs to your rental property.  You cannot
deduct the cost of improvements.  You recover the cost of
improvements by taking depreciation.

Be sure to check our "Repairs and Improvements" section for a more
detailed overview of this subject.



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