Rental Expenses Definition
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.
Real Estate Rental expenses are generally deductible in the year that you pay them. Expenses for property rentals, known as rental losses, can be used to offset rental income
When to Deduct Rental Expenses
You generally deduct rental expenses in the year that you pay them.
Types of Rental Expenses for Real Estate:
You can deduct real estate taxes on your rental property.
You can begin to depreciate rental property when it is ready and available for rent to tenants.
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.
You can deduct mortgage interest you pay on your rental property.
These would be fees paid to a company for collecting the rent andmanaging 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.
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.
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.
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.