You need to evaluate the costs to determine if 1.) they are eligible to be immediately deducted on your tax return or 2.) whether they are capital improvements that must be capitalized depreciated (link article here for capital improvement / depreciation -> inc image of phasing blocks vs taking everything at once).
In our theoretical example below, a rental property owner has purchased a new appliances (e.g. fridge and stove) for $2,500 in the tax year. If you evaluate the purchase and determine that it is a Capital Improvement you'd spread the cost as a Depreciation Expense over the time that you can expect to use the asset. In this case, $500 per tax year. This is also called the "useful life" of the asset. Alternatively, if you think that purchase of the appliances is an General Expense then you'd include the entire cost of the appliances, all $2,500, on you tax return in the tax year you purchased it and deduct the expense from the rental property income.
In our continuing example, if you evaluate the purchase and determine that it is a Capital Improvement, depreciate it, and take depreciation expense of $500 per month. Pahsing the expense over 5 years. Your theoretical taxable income will be $3,040. Higher in tax year 1.
On the other hand, if you determine that the purchase is a General Expense then you'd take the entire cost of the purchase ($2,500) as an expense in tax year 1. Your theoretical taxable income would be lower in year $2,400.
Now that we've chatted about the differences between Capital Improvement and General Expense let's move on and look at specific examples of each type of expense so you can be sure to properly classify your purchases and think strategically about your rental property income and expenses.
Rental property tax deductions and write-offs
Here's a comprehensive list of common rental property expenses. Make sure to evaluate whether they're general expenses that can be immediately deducted from your tax return or capital improvements that need to be depreciated.
Airbnb & Short-Term Rentals additional write-offs ...
Opening up your home or using your extra apartments for AirBNB is a great way to get to know travelers and support your income with already available assets. AirBNB has become the go-to for tourists when visiting a new city, but trying to give your guests the warmest welcome to your town can sometimes dip a little too much into your wallet. Don't worry we're here to help you see how you can save that extra dime when tax season comes around.
If you drive for work ...
If you have to drive between the rental properties, for maintenance or to help check-in clients, this still counts as work, and you'll be able to write off on the mileage between properties.
Note: It's also possible to report the miles you drive for work instead of actual car expenses, but unless you drive a lot for work, you'll save more time & money with tracking car expenses. Learn more
If you work from home ...
If you're renting out a room in your own home, you'll be able to claim the home office deduction!
Note: you don't need to work from a separate room to claim these write offs. A dedicated desk is sufficient. Learn more
If you discuss work at a restaurant ...
The IRS considers any restaurant expense tax deductible as long as the conversation is work-related. This includes discussing industry trends, and even a chat that could turn into a referral.
If you leave town for work ...
If you travel to attend an Airbnb or rental agency conference in another city, or to a property further that 100 miles from home, that's considered business travel and you can claim the following expenses.
The IRS considers any restaurant expense tax deductible as long as the conversation is work-related. This includes discussing industry trends, and even a chat that could turn into a referral.
If you use the rental property for personal use for a portion of the year ...
This article is provided for illustrative purposes only; it does not provide personalized tax, legal, financial, or other professional advice. Your situation may be different; consult a professional for information concerning your individual tax, financial, or legal situation before taking any action.