You can deduct ordinary and necessary expenses, including depreciation, related to your rental income. As in the case of rental income, expenses may need to be divided between rental use and personal use of the property.
You can deduct expenses for managing, conserving, or maintaining rental property starting at the time you make it available for rent, and during periods when the rental property is vacant, but you cannot deduct any loss of rental income for the period the property is vacant. If you sell rental property, you can deduct rent-related expenses until you sell it. You can start depreciating rental property when it is ready and available for rent.
Repairs and Improvements
You can deduct the cost of repairs, and you can recover the cost of improvements through depreciation. Repairs keep your property in good operating condition, but do not add to the value of the property or substantially prolong its life. Improvements, on the other hand, add to the property’s value, prolong its life, or adapt it to new uses. If you make repairs as part of an extensive remodeling or restoration project, the cost of the whole job should be capitalized and depreciated.
Other Expenses
Other expenses related to rental property that may be deducted include advertising, commissions, cleaning and maintenance, utilities, property taxes, insurance, and mortgage interest. If you pay rent on property that you in turn rent out, or sublease, you can deduct your rental payments. If you buy a leasehold, you can amortize the cost over the term of the lease.
Local benefit taxes that are for repairs or maintenance are deductible expenses. But if the charges are for putting in streets, sidewalks, water and sewer systems, or other improvements that increase the value of your property, they are non-depreciable capital expenditures that must be added to the basis of your property.
You can deduct expenses for traveling away from home if the main purpose of the trip was to collect rental income or manage, conserve, or maintain your property. Any personal expenses while on the trip should be separated. You can also deduct local transportation for the same purposes, either based on actual expenses or the standard mileage rate. To deduct car expenses under either method, you will need to keep the required records and complete Part V of Form 4562, Depreciation and Amortization. Section B, Information on Use of Vehicles.