Routine Maintenance

Due to the new tangible property regulations, it is now more than ever important to properly categorize and separate your repairs and maintenance expenses to ensure they are properly treated on your tax return.
Amounts paid for routine maintenance on a unit of property is deemed not to improve that property and is currently deductible. Routine maintenance activities include: inspection, cleaning, testing of the property and the replacement of damaged and worn parts with comparable and commercially available replacement parts.

We recommend you should have the following expense categories for each rental property: cleaning and maintenance, for expenses such as cleaning services and pest control, landscape maintenance, for expenses such as lawn mowing, etc., and repairs and maintenance, for actual repairs and maintenance done to the property. If you have any questions or would like to discuss this further please contact our office.

Rental Real Estate With Personal Use

If your rental real estate is used for personal or vacation use, the deductions may be limited or disallowed. The IRS rules are technical because they involve passive activities, at-risk basis and personal use versus rental use. If you are not familiar with these rules, please contact us to schedule a meeting to discuss your specific situation.

Related Party Leases

When property is owned and leased between related parties, rental rates need to be appropriate in relation to similar rental properties. Unless rent is collected at 80% of fair rental value or higher, deductions may be limited. If you are renting to a related party and they are paying less than 80% of fair rental value, deductions are limited to income. Rental income is often used as a way to transfer cash to shareholders, without paying social security taxes. Be sure there is a written lease and the terms provide for reasonable increases, if appropriate.