First-year rental property – confirming where landscaping/yard preparation expenses should be entered and passive loss treatment

[jackkgan]

I purchased a single-family home in Merced, CA in December 2025 and placed it in service as a rental property later that month.

Timeline:

• Property purchased: early December 2025
• Property listed for rent: December 14, 2025 (listing went live through a property manager and syndicated to rental sites)
• Tenant moved in: February 2026

Because the property was listed and available for rent in December, the rental activity and depreciation were started in 2025.

Some work was done after purchase but before the tenant moved in, including:

• landscaping cleanup and yard preparation
• minor outdoor fixes to make the property presentable for tenants
• cleaning and general preparation for listing

These costs did not add new structures or permanent improvements. They were mainly done to clean up the yard and make the property rentable.

In the return, these costs were entered in Schedule E under rental expenses (maintenance/repairs category) rather than as assets in the depreciation section.

Questions:

1. If landscaping work is primarily cleanup and preparation (not installing new irrigation systems, patios, fences, etc.), is it reasonable to treat it as a maintenance expense on Schedule E rather than a capital improvement?

2. Would entering these costs as maintenance/repairs expenses instead of depreciable assets generally be the correct place in the tax return?

3. These expenses occurred after the property was listed for rent but before the tenant moved in. Are expenses during this period typically deductible rental expenses?

4. The rental shows a loss for the first year, and the software indicates the loss does not provide a tax benefit this year. Is that usually because the loss becomes a passive activity loss that carries forward to future years?

Just trying to confirm that these landscaping and preparation costs were entered in the correct place in the return and that the passive loss treatment is normal for a first-year rental property.

[ReneV4 · Accepted solution]

Since your landscaping work was primarily cleanup and preparation, rather than restoration, it is reasonable to treat it as a maintenance expense.

Yes. Entering these as maintenance on your Schedule E is correct.

Yes. These expenses became deductible the moment the property was placed in service, or "actively listed/advertised".

Yes. What you are seeing is the Passive Activity Loss Limitation. Rental real estate is "passive" by default. Passive activity losses can generally only offset income from other passive activities (like other rentals). However, if your Modified Adjusted Gross Income (MAGI) is under $100,000, you can typically deduct up to $25,000 of rental losses against your "active" income (like W-2 wages). This benefit phases out completely once your MAGI reaches $150,000.

If you have TurboTax Desktop, you can view your Form 8582, Part VII and VIII for the allowed (deductible this year) and unallowed losses (that'll get carried over to next year). You can also review the Federal Carryover Worksheet, for Qualified Business Income Deduction (section 199A) carryovers to ensure the loss is tracked for future years.