Most repairs to a rental property are tax deductible.
Making timely repairs to a rental property is a smart business practice for landlords. Keeping a rental property in good repair will help the landlord to maintain the property's value as well as protect it from further damage. Properly maintained properties also keep tenants happy and reduce the chances of lawsuits. While repair costs can be significant, almost any repair to a rental property creates a tax deduction for the owner.
Repair Definition
Repairs do not add value to the property, but simply keeps the property in good working condition. For the purpose of tax deductibility, projects that result in added value to the property are considered an improvement and not a repair. Improvement costs are not tax deductible. For example, if the entryway to an apartment has damaged carpet, fixing the carpet in that area is a repair. However, replacing the carpet in the entire building is an improvement.
Deductibility
IRS guidelines indicate that repairs must be necessary for the cost to create a tax deduction. For example, replacing a broken window pane is reasonable; replacing a door because of a scratch probably is not. Also the costs of the repair must be reasonable. While replacing a broken window pane is a reasonable repair, the cost of the repair must not be extravagant. The cost of repairs in various parts of the country varies widely, but costs should be within reason for the area.
Labor
The cost of labor charged for repairs to rental property is tax deductible. As with other repair costs, the charges are deductible as long as the cost and repair are reasonable. Landlords should note that the IRS does not allow property owners to deduct expenses for their own labor. For example, a landlord who repairs a broken window in one of their rental properties may deduct the costs of material, but not labor. Landlords can charge travel expenses for driving to the property to complete the repair, going to the store to purchase supplies, meeting with repair workers, etc.
Tax Planning
A landlord should use a competent tax professional too capture all available tax deductions for repairs. A tax professional can assist the landlord in properly documenting and claiming repair deductions. Tax professionals can also help landlords to claim depreciation deductions for projects that qualify as improvements and not repairs. As an added benefit, the fees charged by the tax professional also create a tax deduction for the landlord.
Tags: rental property, broken window, repairs rental, repairs rental property, broken window pane
