Last week we covered reporting Rental Real Estate activities on tax returns. This week we’ll give an overview of Expenses. Next week, we will cover depreciation separately and we will continue to cover various topics pertaining to Rental Real Estate over the coming weeks.
In general, the IRS will let an investor deduct ordinary and necessary expenses that are needed to manage, conserve, or maintain the property. Since Most of the taxpayers who come into our Richardson tax office with real estate investments are taxpayers who use the cash basis of tax reporting, costs would be expensed in the year paid. If you are an accrual basis taxpayer, talk with your accountant or give us a call. Payment by credit card is considered the same as payment with cash. Some of the typical expenses related to Rental Real Estate are listed below:
- Mortgage Interest - This deduction is not the entire mortgage payment but only the interest portion only. This should be reported by the lender on a Form 1098.
- Real Estate Taxes.
- Property or Hazard Insurance.
- MIP or PMI Insurance.
- Advertising to Rent the Property.
- Management Fees.
- Cleaning Supplies or payments to outside vendors.
- Maintenance Costs including payments to outside vendors.
- Mileage if incurred to manage, conserve, or maintain the property.
- Flights, Hotels and Meals for a non-local property if the intent of the trip was for the maintenance and upkeep of the property.
- Loan Closing Costs need to tracked as well. Typically only Real Estate Taxes and some interest and points are directly deductible. However, there are are other closing costs including recording fees, title insurance, etc… that should be tracked and added “Cost Basis” of the property and depreciated over time.
- Other costs that are ordinary and necessary expenses that are needed to manage, conserve, or maintain the property.
What happens if the property is vacant? As long as the property is available for rent and you are trying to rent it, the costs are deductible.
In the previous article, we covered how to report rental payments shorted due to expenses paid directly by the tenant. In those cases, the full amount of rent income is reported and the amount shorted to reimburse the tenant is reported as an expense to the proper expense category.
Do you Need Help?
If you would like help from a firm that specializes in working with realtors and real estate investors, as well as helping those who have IRS problems solve their problems, please give us a call at (972) 821-1991.