Deducting rental property repairs on your tax return reduces your rental income and lowers the amount of tax you owe. In most cases you need to use Schedule E (Supplemental Income and Loss) to report rents received and expenses paid. Internal Revenue Service guidelines determine if a repair is to be written off at once; if a change in a property is an improvement rather than a repair, it is not written off but treated as a capital expenditure and depreciated over time. Limits may apply to the amount of loss you can claim from rental activity.
Replacing locks, leaking faucets and broken glass are common rental property repairs. Patching and repainting a wall to cover nail holes is also common. Occasionally you may need to repair an appliance, the furnace, or water heater. Country homes need the septic tank pumped out periodically. These are all minor repairs that can reduce your rental income each year.
Total the individual repairs made throughout the tax year. They are fully deductible the year you incur them. Place the total on line 14 (Repairs) of Schedule E. Repairs are just one of your deductible rental expenses listed on Schedule E. When you make replacements instead of repairs, these are considered capital improvements. They are set up on Form 4562 (Depreciation and Amortization) and are depreciated over several years. The annual depreciation total is placed in line 18. IRS Publication 946 provides more information on depreciation.
Divide your expenses between personal use and rental use if you used the rental at any time during the year. For example, if you use the rental as your vacation home for two weeks each year, then you must deduct 96 percent (50 weeks divided by 52 weeks) of your expense. Rentals are considered passive activity in most cases by the IRS. Losses from rental activity are limited by the IRS to offsetting other passive income instead of reducing your earned income. Publications 527 and 925 offer information on how to calculate limits on rental losses in cases where your total rental expenses exceed your rental income.
The IRS may ask for proof to substantiate any expense, so you must keep receipts. They can be physical or electronic receipts. Canceled checks that were made out to the service provider provide documentation. Keep credit card statements and electronic payment transmissions. They can help substantiate your expense by providing a list of items purchased to make a repair or the names of service professionals.
- Internal Revenue Service: 2014 Instructions for Schedule E (Form 1040)
- Internal Revenue Service: 2014 Instructions for Form 4562; Depreciation and Amortization (Including Information on Listed Property)
- Internal Revenue Service: Publication 527 (2014), Residential Rental Property
- Internal Revenue Service: Publication 946 How to Depreciate Property
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