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Purchasing an investment property to rent out to tenants can be a lucrative way of making an extra income, as well as achieving capital growth (which is dependent on the market, of course). But there’s a lot to learn about being a landlord, much of which is specialized knowledge – including tax implications, tenant rights, landlord responsibilities, and other legislative issues. Because of this, most investors take on the services of professional property management to take care of their valuable asset. But even though a reputable property management company acts as your representative to ensure your investment is both compliant and profitable, you should still try to learn as much as you can. Understanding Deductible Repairs It’s important to know that you don’t just get to collect your rent and expect it all to be profit. As a landlord, you have an obligation to maintain the house or apartment properly and carry out any urgent or non-urgent repairs if and when required. The good news is that many repairs are deductible – meaning you get to “write them off”. This can significantly reduce your taxable income as well as helping to offset expensive maintenance costs – which is all good news for your bottom line. However, it’s important to note that the IRS does not class improvements to a property as repairs, and they must be handled differently. (This is something for your tax accountant to deal with but basically involves treating them as capital and depreciating them over time.) What Constitutes a Repair? The IRS has very strict guidelines around what constitutes a repair, but in layman’s (and landlord’s) terms, it’s any expense incurred to maintain the property to its current standard (fixing existing components), without adding “substantial” value - because that would be an “improvement”. It might sound simple, but the IRS also states a “repair” cannot extend the lifespan of the property - you can see why your property management team and your accountant earn their money! Common Deductible Repairs Here are some of the most common repairs you might need to pay out for that are generally considered deductible. Electrical: Replacing wiring and faulty sockets or light fittings. Plumbing: Unclogging and repairing toilets, leaky pipes and/or faucets, unclogging drains. Minor cosmetic issues: This can include paint touch-ups to bring up to an acceptable standard, replacing damaged or worn carpets in high-use areas, and refinishing/repairing worn kitchen or bathroom counters. Appliances: Fixing (with replacement of minor parts) existing appliances like the dishwasher, stove, fridge, or washing machine. NOT full replacement of said appliances. HVAC (heating, ventilation and air-conditioning): As per appliances, this only includes servicing and repairs with minor parts replacement, NOT a full replacement of a system. Security: Repair or replacement of broken locks and any existing security system, as well as replacement of non-functioning carbon monoxide and smoke detectors. Structural issues: This can vary for houses and apartments, but most often will include fixing exterior doors, leaking roof (not replacement), plastering holes in floors, walls or ceilings. Listen to Expert Advice The above is a very simplified outline of what can and can’t be written off as a deductible repair, but it’s quite a complex issue, and when the IRS is involved, it’s imperative that you make sure you are keeping to the letter of the law. Your property management team will be able to advise you on when it’s more beneficial to carry out a repair over a replacement, and prepare a schedule for expensive items to be replaced with the cost spread over a number of tax years. Author Plate Danny Torres is from Torres Turn Key, a property management company in Rochester NY with more than ten years’ experience dealing with both domestic and international investors. Providing a holistic service for the property management of both commercial and residential properties, the company brings together a host of experience and specialist knowledge to build long-term relationships and create maximum value and benefit for their customers.
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