There's no reason to kick out tenants just to repair a roof.
When you own a rental, it means keeping adequate records of all expenses for tax time. If you have to repair your property, such as replace a window or patch a roof, you can take that as a deduction. The IRS considers rental income as proof the house was a rental, so having it occupied while you do repairs is a plus when you file your taxes.
Repairs During Rental
The IRS requires that you rent, or attempt to rent, the property in order to take any deductions off schedule E. While it's difficult to prove your attempt if you collected no rent during the year, as long as you had rental income, there's no problem. So, doing repairs while the property is occupied, rather than empty, would mean you didn't have to worry about qualifying for the deduction.
Not-for-Profit
If the IRS deems your property is not for profit, you can't deduct it. In most cases, this involves property you might personally use during the year, like a vacation home. If this happens, you can't use schedule E but must include any rental income with your annual income and include any expenses on itemized deductions. This means you can't offset any other personal income with losses.
Repairs Vs. Improvements
The IRS treats "repairs" differently from "improvements." Repairs are items such as fixing a broken toilet, replacing faucet, repairing faulty switches or simply painting. Improvements would be a total remodeling of the bathroom, building a room addition and other items that improve the value of the house. You can deduct repairs but must capitalize improvements for depreciation. That is, you add improvements to the value of the property, then deduct them in your depreciation of the property annually. Repairs are something you could do while the property is occupied or during a brief interim between tenants. Major improvements may require the property to be unoccupied, meaning long-term projects could bring the qualification of the property as a rental into question.
Tenant Damage
Some repairs and maintenance comes from having tenants in the house. If Molly decides her Barbie wants to swim in the porcelain pool and then flushes, backing up the plumbing, you have a job that only occurs if you have a present tenant. Maybe you rented, but in an effort to rent quickly, still needed to do a few repairs. That's typical and the IRS understands this.
Don't Forget Mileage
When your rental isn't next door, you need to include travel in the mix. Track the cost of your mileage and make sure you don't forget this valuable deduction when you do your taxes.
Tags: rental income, during year, income with, property occupied, while property
