It's that time of year again, time to start gathering information to file your taxes. It is simply an inevitable part of life that no one enjoys.
So what qualifies as an expense? It is important to understand that there are 2 types of expenses, current & capital.
Current expenses are usually those that come with regularly operating a rental business, or expenses to keep the property in good safe condition. The IRS considers the following 'requirements' for current expenses:
- Current: Something that will have a 'short' term value to your property such as a repair to the furnace vs 'long' term such as a roof replacement.
- Directly related to your rental: It has to be business related. It would be hard to use new pair of Manolo Blahnik as a current expense on a rental property, but paying your property manager would be directly related.
- Ordinary/Necessary: Sounds simple enough right, utilities, taxes, advertising, etc.
- Reasonable: There is a lesson to be learned here, if you don't want to be audited you probably shouldn't claim $1000 for a
Capital Expenses are items that actually will increase the value of your rental or is helping to extend it's life. These are items that must be depreciated over time. It if costs a lot to replace it should probably be a capital expense.
With all that said, I am not a tax professional. ALWAYS check with your tax attorney or CPA regarding specifics or any questions you have.