This part discusses expenses of renting property that you ordinarily can deduct from your rental income. It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Depreciation
, which you can also deduct from your rental income, is discussed later.
You generally deduct your rental expenses in the year you pay them. taxmap/pub17/p17-043.htm#en_us_publink100032800
If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you cannot deduct any loss of rental income for the period the property is vacant. taxmap/pub17/p17-043.htm#en_us_publink100032801
You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. taxmap/pub17/p17-043.htm#en_us_publink100032802
You can begin to depreciate rental property when it is ready and available for rent. See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. taxmap/pub17/p17-043.htm#en_us_publink100032803
If you sell 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. taxmap/pub17/p17-043.htm#en_us_publink100032804taxmap/pub17/p17-043.htm#en_us_publink100032805
If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. taxmap/pub17/p17-043.htm#en_us_publink100032806
If you are a cash basis taxpayer, do not deduct uncollected rent. Because you do not include it in your income, you cannot deduct it.
If you use an accrual method, you report income when you earn it. If you are unable to collect the rent, you may be able to deduct it as a business bad debt. See chapter 10 of Publication 535 for more information about business bad debts.taxmap/pub17/p17-043.htm#en_us_publink100032807
You can deduct the cost of repairs to your rental property. You cannot deduct the cost of improvements. Instead, recover the cost of improvements by taking depreciation
Separate the costs of repairs and improvements, and keep accurate records. You will need to know the cost of improvements when you sell or depreciate your property.
A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs.
If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. taxmap/pub17/p17-043.htm#en_us_publink100032810
An improvement adds to the value of property, prolongs its useful life, or adapts it to new uses. Improvements include the following items.
- Putting a recreation room in an unfinished basement.
- Paneling a den.
- Adding a bathroom or bedroom.
- Putting decorative grillwork on a balcony.
- Putting up a fence.
- Putting in new plumbing or wiring.
- Putting in new cabinets.
- Putting on a new roof.
- Paving a driveway.
If you make an improvement to property, the cost of the improvement must be capitalized. The capitalized cost can generally be depreciated as if the improvement were separate property. taxmap/pub17/p17-043.htm#en_us_publink100032811
Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. taxmap/pub17/p17-043.htm#en_us_publink100032812
You can deduct the rent you pay for property that you use for rental purposes. If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. taxmap/pub17/p17-043.htm#en_us_publink100032813
You can deduct the rent you pay for equipment that you use for rental purposes. However, in some cases, lease contracts are actually purchase contracts. If so, you cannot deduct these payments. You can recover the cost of purchased equipment through depreciation. taxmap/pub17/p17-043.htm#en_us_publink100032814
If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. You cannot deduct the total premium in the year you pay it. taxmap/pub17/p17-043.htm#en_us_publink100032815
Generally, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. These charges are nondepreciable capital expenditures, and must be added to the basis of your property. However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. taxmap/pub17/p17-043.htm#en_us_publink100032816
You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip was to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and nonrental activities. You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. You recover the cost of improvements by taking depreciation. For information on travel expenses, see chapter 26
To deduct travel expenses, you must keep records that follow the rules in chapter 26
You can deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property.
Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. For 2008, the standard mileage rate for each mile of business use is:
- 501/2 cents a mile for the period January 1 through June 30, 2008, and
- 581/2 cents a mile for the period July 1 through December 31, 2008.
For more information, see chapter 26
To deduct car expenses under either method, you must keep records that follow the rules in chapter 26
. In addition, you must complete Form 4562, Part V, and attach it to your tax return.
You can deduct, as a rental expense, the part of tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. For example, on your 2008 Schedule E, you can deduct fees paid in 2008 to prepare your 2007 Schedule E, Part I. You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities.