Tax Deductible Rental Property Expenses 2 (insurance, cleaning & maintenance, repairs)
Now that you are engaged in renting your property out for income, it is very important for you to ensure that certain fees and services are properly set up and recorded for tax purposes. Let’s discuss some of these expenses.
As with most premiums, this is usually prepaid in advance for a certain period of time. An example here would be you purchased insurance for this specific property on March 2012 for $1200. The coverage period is from April 2012 to March 31, 2013. Since the coverage period does exceed the current tax year, you must apportion and allocate the premiums applicable to this current year only and carry forward the balance for the next reporting period. In this example your allowable premium deduction would be $900 (9 months April to Dec 2012) or $100 per month of qualified rental use.
Please note that some Insurance carriers frequently bundle premium packages between personal and business customers for a discounted rate. You must ensure that you only allocate the portion which is applicable to your business rental property from this deduction. The personal and non business use may be deductable on your personal income tax return. Finally, Title insurance is not applicable as an expense and must be included in the Cost Basis of the property.
Cleaning and maintenance
The day to day maintenance of the property is an allowed expense provided it is only for common areas and day to day cleanliness. These expenses are also limited to the days that are allowable rental days and not personal use days. Many property owners have contracts with local services to maintain the property on an ongoing basis to ensure it is in working and useable order. This may include such services as window cleaning, dusting, appliance cleaning and upkeep. Only these types of services are allowed, any type of structural repairs and or changes must be allocated to the Cost basis of the property.
On occasion, there may be some need to repair an appliance, touch up some painting, or some task that does not require a major renovation of the property structure. These costs which are ordinary and necessary are deductable in accordance with the rental period of time.
It is important to note that these costs that are usually deductable against the income of the rental property, you must not include those periods that are considered personal days of use. Only those expenses in which are directly related to the approved rental period are allowed.
For more information, please review IRS Publication 527 for current regulations. Also, included please review the worksheet which will assist in the allocation between business and personal use time.