Expenses For Rental Property

As with any business, there are expenses for a rental property just as there are for an accountant that chooses to work from home. By keeping track of your expenses, you'll be able to properly deduct them when tax season rolls around and maximize your income stream from this asset. What are the expenses for a rental property? Here is a general overview of what you can deduct.

There Are Four Basic Types of Expenses That You Can Deduct

For most rental properties, it is possible to deduct expenses that fall into 4 general categories.

1. Depreciation. Once you've acquired the rental property, it begins to depreciate for you. Any improvements that you make which add value to the property, as well as your original acquisition cost, qualify for this deduction. It begins in the first year that you've owned the property.

2. Repairs. If you cannot deduct an improvement or repair because it adds no real value to the property through depreciation, then you'll be able to deduct it as an expense. Any repair you make to keep your property in working order qualifies for this expense.

3. Operating expenses. These are the legitimate costs that you have in order to properly take care of your rental property. If you go out for lunch while doing inspections, that might not be accepted as an expense. If you take a prospective tenant out to lunch to woo them, however, that would likely qualify.

4. Uncollected rent. If you operate on a cash basis, which means you treat incoming money as income, then any rent that you are unable to collect from a tenant with a legitimate agreement can count as an expense for you as well.

It is important to have paperwork that documents all of these expenses accurately, especially when it comes to tax season. That way you'll have the proof you need to deduct these items appropriately when the time comes.

What Other Expenses Are There?

Some specific repair costs may or may not be deductible. The most common expense in this category is the materials that are required to create a repair. Let's say you need to paint three rooms in your rental property and you've decided to do the work on your own. The cost of the paint would actually depreciate and not be considered a deductible expense because it adds value to the home as an improvement. The brushes, paint trays and other tools that you would need to do the work would be considered a deductible business expense.

The one thing that must come into consideration is the purpose of the rental property. If you do not use the rental property as a home for yourself at any time and the purpose of renting is to make a profit, then your allowable expenses can exceed your income that comes in when you report your taxes. If you do live in the home for any established time, then the expenses cannot exceed your income.

By knowing what expenses you have with a rental property, you'll be able to maximize your income – especially during tax season. Take these categories into account today and make sure you document everything to make sure all of your interests are protected.
Posted on Oct 01, 2014


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