What deductions can I take if I have a rental?
Costs you incur to place the property in service, manage it and maintain it generally are deductible. Even if your rental property is temporarily vacant, the expenses are still deductible while the property is vacant and held out for rent.
Deductible expenses include, but are not limited to:
Advertising, commissions, and management
- Advertising
- Commissions
- Management fees
- Professional fees
Maintenance and operation
- Cleaning and maintenance
- Homeowner association dues and condo fees
- Insurance premiums
- Pest control
- Rental of equipment
- Rents you paid to others
- Repairs
- Supplies
- Trash removal fees
- Utilities
- Yard maintenance
Travel and vehicle costs
- Auto expenses
- Travel expenses, including air fare and car rental
Interest and taxes
- Mortgage interest
- Other interest related to the rental
- Real estate taxes
- Other taxes related to the rental
Depreciation
- Depreciation
Expenses must relate to the rental activity. A mortgage payment includes principal as well as interest; the principal portion is not a current rental expense.
You can deduct the cost of travel to your rental property, if the primary purpose of the trip is to check on the property or perform tasks related to renting the property. If you mix business with pleasure, though, you’re required to allocate the travel costs between deductible business expenses and nondeductible personal costs. Keep a log of dates and purposes so the personal and rental parts of a trip can be separated.
Repairs, improvements, and depreciation
A repair and an improvement are not always treated the same way. Costs that improve the property may need to be capitalized and recovered over time. Keep invoices and describe the work rather than putting every contractor payment into repairs.
Depreciation depends on the property’s basis, when it is ready and available for rent, and the applicable recovery rules. Land is not depreciable. Bring purchase documents and earlier depreciation schedules, especially when a property is new to our practice.
A rental loss may not reduce this year’s other income
Passive activity and at-risk limits can delay a deduction even when the expenses are legitimate. Personal use, short-term rental arrangements, and participation also matter. A spreadsheet showing a loss is the start of the review, not the final tax result.
What to gather
Keep rent received, expense records, personal-use dates, mileage logs, closing statements, and improvement details by property. Request your tax organizer and send records through the secure document portal.
Source: IRS Publication 527, Residential Rental Property. Questions about a rental? Contact Maguire Taxes.