Rental Property Expenses

[kata123]

I bought a rental property in April 01, 2025, and was ready for rent on April 30, 2025. It was rented on May 16, 2025. It was bought strictly for rental, and never used for personal or vacation use.

My question is, what fees from closing statement from escrow I can deduct, depreciate or amortize? What about the HOA and mortgage interest paid prior to getting the property ready for rental? What about the expenses incurred to get the property ready for rental (i.e. prior to 04/30/2025) e.g. new paint, added new blinds, repair garage door and washer, cracked window glass etc.?

Thanks.

[JamesG1]

In TurboTax Online, establish the rental activity by following these steps: 

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Wages & income.
• Scroll down to Rentals, Royalties, and Farm.  Click down arrow to the right.
• Select Start / Revisit to the right of Rental Properties and Royalties.
• At the screen Here's rental property info, select Add income to report rental income.
• At the screen Here's rental property info, select Add expense or asset to report rental expense.
• Select Add expense or asset to establish the rental property asset.
• Answer the questions to establish the rental property asset and compute depreciation on the rental property asset.

Rental property income is reported on Schedule E Supplemental Income and Loss.  See also this TurboTax Help.

IRS Publication 527, page 10 lists settlement fees and other costs that may be included in the basis of the property.

Page 11 lists costs that may not be included in the basis of the property.

HOA fees may be deducted as a miscellaneous expense within the rental activity.

What about the expenses incurred to get the property ready for rental?

The IRS addresses these expenses in IRS Publication 527, page 5 states:

Pre-rental expenses

You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent.

[kata123]

Thanks James for your responses.

Your response mentions expenses incurred can be deducted only from the time you make it available for rent.  Is it possible that repairs done to the property in getting ready for rent could fall under "Betterment" definition of Pub. 527?

[JamesG1]

This is the way that I read Publication 527.  

The Pub portrays improvements as expenditures that may be capitalized and depreciated.  

The Pub portrays betterments as expenses that would then be subject to the quote from page 5 above.

My understanding of the stance that the IRS takes is based upon the nature of the business, active participation versus passive participation.  

The IRS considers a rental activity to be a passive activity by its nature.  And the IRS considers a self-employment activity to be an active participation activity by definition. The IRS sees no problem expensing or amortizing start up costs for a self-employment activity.

This is my take.  I am sure that you will be able to find vigorous discussions on this blog on this topic.  Best wishes to you.

@kata123 

[kata123]

Thanks for your response.