Operating Expenses – Other expenses necessary for the operation of the rental property, such as the salaries of employees or fees charged by independent contractors (groundkeepers, bookkeepers, accountants, attorneys, etc.) for services provided.Repair Costs – Expenses to keep your property in good working condition but that don't add to the value of the property.You can recover some or all of your original acquisition cost and the cost of improvements by using Form 4562, Depreciation and Amortization (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings. You begin to depreciate your rental property when you place it in service. Depreciation – Allowances for exhaustion, wear and tear (including obsolescence) of property.If a security deposit amount is to be used as the tenant's final month's rent, it is advance rent that you include as income when you receive it, rather than when you apply it to the last month's rent.Įxamples of expenses that you may deduct from your total rental income include: To the extent the security deposit reimburses those expenses, don't include the amount in income if your practice isn't to deduct the cost of repairs as expenses. If you keep part or all of the security deposit because the tenant damaged the property and you must make repairs, include the amount you keep in that year if your practice is to deduct the cost of repairs as expenses. If you keep part or all of the security deposit because the tenant breaks the lease by vacating the property early, include the amount you keep in your income in that year. Security deposits – Don't include a security deposit in your income if you may be required to return it to the tenant at the end of the lease. You may also deduct the expenses if they're considered deductible expenses.
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