I recently heard the old Beatles song, “The Tax Man,” which goes in part, “If you drive a car, I’ll tax the street. If you try to sit, I’ll tax your seat. If you get too cold, I’ll tax the heat. If you take a walk, I’ll tax your feet.” To follow suit, if you own a rental home, the Tax Man will tax your rental income. But, fortunately, many of your rental expenses can be used as deductions, too.
Do you have to report your rental income to the IRS?
The IRS requires you to report your rental income if you rent your property for more than two weeks in a given year.
What expenses can you deduct?
You might be surprised to learn about some of the deductions you can take. In most cases, you can deduct from your rental income expenses such as:
- general maintenance and cleaning services, including pest control and lawn care
- cleaning supplies
- insurance, taxes, and mortgage interest
- advertising expenses, including fees for a photographer or consultant management and condo fees
- Legal and other professional fees
In addition to any legal fees related to your rental home, you can deduct tax return preparation fees you paid an accountant to prepare Schedule E (Supplemental Income and Loss) of your tax returns.
Repairs vs. Improvements
The IRS says that for a rental property, repairs can be deducted (anything that keeps your rental in good operating condition) but improvements (such as an addition) may not. Improvements must be depreciated over several years.
Examples of repairs include such things as painting, fixing gutters, repairing leaks, and replacing broken windows. Contractors’ wages are considered a business expense as well.
Deduct travel expenses
Do you travel to your rental to make repairs or maintain it? If so, then you can deduct your travel expenses.
Keep accurate and detailed records
Be sure to record all expenses associated with your rental, including sales receipts, utility bills, and invoices for services. You will also need to total your rental income for the year, as well as the number of weeks that you rented your home vs. how many weeks you used it for your own enjoyment. It’s important to keep accurate records in case you need to verify your expenses. Of course, it’s always advisable to consult a tax accountant about your particular situation.
For more information, see this IRS publication.
Do you have any other tax advice for fellow homeowners?
