Yes, the IRS lets you claim and deduct ordinary and necessary expenses required to
manage, conserve, or maintain property that you rent to others. You're
allowed to deduct these expenses if your property is vacant, as long as you're trying to rent it.
Also, expenses must be deducted in the year they are paid.
For example, if a pest-control company serviced your rental in 2016 but
you didn't pay them until early 2017, you'd deduct that expense on your
2017 tax return.
Deductible expenses include, but are not limited to:
- Cleaning and cleaning supplies
- Maintenance and related supplies
- Repairs
- Utilities
- Insurance
- Travel to and from the property
- Management fees
- Legal and professional fees
- Commissions
- Taxes and tax return preparation
- Lease cancellation costs
- Advertising
- Real estate taxes
- Mortgage interest - Note: You cannot deduct the mortgage payment; only the interest is deductible.
Major improvements that add to the value of your rental property, prolong its life, or adapt it to new uses are also deductible, but they must be depreciated over a period of time rather than deducted as a current-year expense.
For example, if you spent $8,000 on a new roof, major appliances, or
furniture, and collected $20,000 in rent last year, you cannot simply
subtract the cost of these items from your rental income to come up with
$12,000 in net rental income. Instead, the $8,000 must be depreciated
over time.
Improvements are entered in the Assets/Depreciation section of the rental interview as opposed to the Expenses section. These include things like:
- Remodeling
- New roofs
- Heating and AC units
- Water heaters
- Plumbing
- Insulation
- Carpeting
- Flooring
- Built-in appliances
- Landscaping
- Sprinkler or irrigation systems
- Hardscaping (pavement, block walls, patios)
- Swimming pools and spas
- Fences
- Security systems
See IRS Publication 527 for a more comprehensive list of expenses and improvements (the improvements are at the bottom of the page).
If it was never used for personal use, and the rental property was at
all times relevant being renovated, you would indicate that it was
rented all year to allow the deductions to be entered.
Note: Although it doesn't seem logical, refinance fees and mortgage points are also entered in the Assets/Depreciation section. The IRS considers these "amortizable intangibles" which means they must be depreciated, not expensed.
To enter information in TurboTax please see the following:
- Select Federal Taxes (Business in the Home & Business edition).
In Online TurboTax Premier, click the bars at the upper left corner to show Federal Taxes
on the selection list; enlarge the screen if needed to show the left
side selection list. If you don't see the menu bars, you must first step
through each of the interview screens in TurboTax.
- Select Business Income and Expenses and in the next screen, click I'll choose what I work on.
- On the Your Income Summary screen (TurboTax Premier edition) or the Your Business Income screen (TurboTax Home & Business edition), scroll down to the Rentals and Royalties group.
- Click Start/Update next to the Rentals and Royalties line and step through the rental interviews to the Your <name> Rental Summary screen.
If you have more than one rental entered, select the out-of-state property.
- Click the Start/Update button next to each topic on the Your <name> Rental summary screen to enter your rental income, expenses, assets, depreciation, and vehicle expenses.
