How to Deduct Rental Property Repairs

There are many advantages to being a landlord. Unlike repairs made to your personal residence, rental property repair costs that are incurred to place the property in rentable condition or to maintain it are deductible on Schedule E of your personal 1040 tax return. The IRS tax code is complex and can be difficult to understand, so you may want to consult a tax adviser before deducting rental property repairs.

Things You'll Need

• Tax forms
• Receipts
• Canceled checks

Instructions

Deduct Rental Property Repairs

1. Maintain good records. To deduct rental repairs, you must be able to document the write-off. Find a safe place to store all of your receipts, canceled checks and bank statements.

2. Keep track of any travel expenses you incur for rental property repairs. You are allowed to take the standard mileage rate or deduct actual expenses. You can deduct the business portion of necessary travel expenses for airfare, meals and lodging when traveling out of your immediate area.

3. Separate receipts for minor repairs like plumbing, fixing a broken door or window, repairing a refrigerator or minor repainting (anything done to maintain the property in good working condition) from receipts for capital improvements like adding a new roof, remodeling a kitchen or bathroom or installing insulation.

4. Sum up your receipts and canceled checks for your repairs. All of these costs are deductible in the year they were incurred.

5. Add up all of your receipts and canceled checks for capital improvements. These expenses must be depreciated over the useful life of the property on IRS form 4562. Only a percentage of these expenses are deductible in the year they were incurred.

6. Fill out Schedule E and form 4562. List the total of your expenses for repairs on Schedule E, line 16. Carry over your depreciation deduction from form 4562 and list it on line 20.

7. Complete the remainder of Schedule E and deduct the total of all of your rental expenses from your rental income.

Tips & Warnings

• If a tenant offers to make repairs in exchange for a reduction in rent, you must include the fair market value of his services as income. You can, however, deduct the same amount on your schedule E as a rental expense.

• You can deduct repair expenses even when your property is vacant, as long as you have the intention of renting it.

• Losses from rental property are considered passive losses and can, in most cases, only be used to offset income from passive investments. There is an exception for landlords with a gross income of $100,000 or less who actively participate in the management of the property. They may be able to deduct $25,000 of passive losses from other income.