If current expenses (not for the improvement of property) plus depreciation equal or exceed your rental income you'd have no net taxable income. However, be aware that property improvements are depreciated over time and not fully expensed in the year they are incurred.
These are the most common fixed expenses for a rental property. Some of them may not apply or may be paid by the tenant.
- Water/sewer/gas
- Electricity
- Trash collection
- HOA fees
- Insurance
- Property management fees
- Property taxes
- Mortgage payment
- Repairs necessary to maintain the property in rental condition
These expenses you incur that don't result in a betterment, restoration, or adaptation are currently deductible repairs.
Here’s the basic rule from the IRS: An expense is for an improvement if it:
- makes a long-term asset much better then it was before
- restores it to operating condition, or
- adapts it to a new use.
The IRS allows real estate investors to deduct rental expenses from income on the tax return. Normal expenses include items such as operating expenses, mortgage interest, repairs, materials and supplies, and property taxes. The cost of improvements made for the betterment or restoration of the property are recovered through depreciation. Tax law allows investors to deduct a certain percentage of the property value and any improvements made during the time they own the property annually. Two helpful IRS publications are Tangible Property Regulations and Deducting Business Expenses.
Answers are correct to the best of my ability but do not constitute legal or tax advice.
**If this post is helpful please click on "thumbs up"**
