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Rental Expenses and The Tax Gap

Rental Income And The Tax Gap

Track all Rental Expenses using QuickBooks as a financial and property management software.

Landlords can deduct the ordinary and necessary expenses for managing, conserving, and maintaining their rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemedĀ appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

Other deductible expenses may include:

  • Expenses incurred from the time a property is made available for rent and is actually rented.
  • Some or all of theĀ original investment in the rental property may be recovered through depreciation using Form 4562, Depreciation and Amortization. Subsequent improvements may also be depreciated.
  • The cost of repairs may also be deductible. This may include the cost of labor and materials. However, landlords cannot deduct the value of their own labor.
  • Improvements that add to the value of a property or prolong its useful life are consideredĀ capital expenses and generally must beĀ depreciated. Discussion about whether an expenseĀ is an improvement or a repair is included in Publication 946, How to Depreciate Property.

Expenses may beĀ deductible on rental property also used for personal use, but only on a proportional basis. Landlords are permittedĀ to use any reasonable method for calculating what portionĀ of a property should beĀ considered rental. Using square footage is a common method and frequently the most accurate.

Some property is rentedĀ out at times and used for personal use other times, such as a beach house. In this case, deductible expenses must beĀ calculated based on the number of days the property is used for each purpose. Deductible rental expenses can not exceed gross rental income for property used for both personal use and as a rental in a given year.

Expenses incurred while property is vacant but available for rent may beĀ deductible. Lost rental income while a property is vacant is not deductible.

Information on other rental expenses and reporting requirements is available in Publication 527.

Gita Faust

About the Author

Gita Faust has over 30 years of accounting experience in the real estate and property management industry, Gita Faust is more than just a real estate investor; she is also popular for her work as an accountant, consultant, mentor, speaker, QuickBooks Top ProAdvisor, QuickBooks Solution Provider, member of Intuitā€™s Trainer/Writer Network, and, of course, author. Gita is well-known for her exemplary leadership and advisory skills. In fact, she even helped pioneer the adaptation of QuickBooks to suit the needs of professionals in real estate and property management. To share her knowledge she has written a series of courses titled Simplified Accounting Solution, which provides step-by-step guidance for those working with QuickBooks.

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