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Taxmap/pub17/p17-045.htm#TXMP4b74bf17 Rental Expenses

Rental Expenses

This part discusses repairs and certain other 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.

Taxmap/pub17/p17-045.htm#TXMP67489f56 When to deduct.

You generally deduct your rental expenses in the year you pay them.

Taxmap/pub17/p17-045.htm#TXMP38d37c70 Vacant rental property.

Vacant rental property.

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/p17-045.htm#TXMP06da07a0 Pre-rental expenses.

Pre-rental expenses.

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/p17-045.htm#TXMP470acbdd Depreciation.

Depreciation

You can begin to depreciate rental property when it is ready and available for rent. See Placed-in-Service Date under Depreciation, later.

Taxmap/pub17/p17-045.htm#TXMP29545cd4 Expenses for rental property sold.

Expenses for rental property sold.

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/p17-045.htm#TXMP518fe79c Personal use of rental property.

Personal use of rental property.

If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Also, your rental expense deductions may be limited. See Personal Use of Dwelling Unit (Including Vacation Home), later.

Taxmap/pub17/p17-045.htm#TXMP57be7503 Part interest.

Part interest.

If you own a part interest in rental property, you can deduct your part of the expenses that you paid.

Taxmap/pub17/p17-045.htm#TXMP51d3402f Repairs and Improvements

Repairs and Improvements

You can deduct the cost of repairs to your rental property. You cannot deduct the cost of improvements. You recover the cost of improvements by taking depreciation (explained later).

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.

Taxmap/pub17/p17-045.htm#TXMP378f6ad1 Repairs.

Repairs

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/p17-045.htm#TXMP6f5af0ed Improvements.

Improvements

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/p17-045.htm#TXMP7202df83 Other Expenses

Expenses

Other expenses you can deduct from your rental income include advertising, cleaning and maintenance services, 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/p17-045.htm#TXMP035fea9c Rental payments for property.

Rental payments for property.

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/p17-045.htm#TXMP49840533 Rental of equipment.

Rental of equipment.

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/p17-045.htm#TXMP235303b3 Insurance premiums paid in advance.

Insurance premiums paid in advance.

If you pay an insurance premium for more than one year in advance, each year 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/p17-045.htm#TXMP3e3470db Local benefit taxes.

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. You must add them to the basis of your property. You can deduct local benefit taxes if they are for maintaining, repairing, or paying interest charges for the benefits.

Taxmap/pub17/p17-045.htm#TXMP497ead16 Travel expenses.

Travel expenses.

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. For information on travel expenses, see chapter 28.

To deduct travel expenses, you must keep records that follow the rules in chapter 28.

Taxmap/pub17/p17-045.htm#TXMP08f218ed Local transportation expenses.

Transportation Expenses

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 2004, the standard mileage rate for all business miles is 371/2 cents a mile. For more information, see chapter 28.

To deduct car expenses under either method, you must keep records that follow the rules in chapter 28. In addition, you must complete Form 4562, Part V, and attach it to your tax return.

Taxmap/pub17/p17-045.htm#TXMP6f9043b4 Tax return preparation.

Tax return preparation.

You can deduct, as a rental expense, the part of the tax return preparation fees you paid to prepare of Schedule E (Form 1040), Part 1. You can also deduct, as a rental expense, any expense you paid to resolve a tax underpayment related to your rental activities. On your 2004 Schedule E, you can deduct fees paid in 2004 to prepare your 2003 Schedule E, Part I.

Previous Page:  Publication 17 - Your Federal Income Tax - Rental Income and Expenses Next Page:  Publication 17 - Your Federal Income Tax - Not Rented for Profit Use     to find additional instances of index items.