Tax Deductions in Startup Expenses

This particular section of the rental property tax guide looks at deductible rental startup expenses. You are allowed to deduct certain expenses you incur while preparing your property for rental, that is prior to renting the property.

Note: Startup expenses laid out within this segment of the Landlord’s Tax Guide, are dissimilar from the expenses which qualify as deductible (under section 195 of the Internal Revenue Code.) Within this section, certain expenses incurred as startup expenditures in an active trade or business are deductible up to $5,000, with the balance amortizable over a fifteen-year period. Though, section 195 does not apply to rental property this is because renting isn’t viewed as an active business or trade, but rather it is regarded a passive activity. See the article Tax Deductible Rental Losses, included in this Guide, for more on passive activity rules.

Note: It isn’t when you’ve literally rented real estate that rental activity commences, but when you make the property available for rent.

The Expenses in Obtaining a Mortgage

Abstract fees, recording fees, and mortgage fees (amongst others) are capitalized and thus become part of your basis in the property. Rather than expensing these fees all at once, you need to depreciate the expenses. The Depreciation Expenses for Rental Properties article (within the Landlord Tax Guide) allows for a closer study of depreciation.


What are points? They are charges paid by a borrower to take out a mortgage or a loan. These charges may also be called loan origination fees, maximum loan charges, or premium charges. Points are deductible as interest, but require that you amortize the points over the life of the loan. Determining the amount of points to amortize per year, is task beyond the scope of this article. Talk with a certified public accountant.

Repairs versus Improvements

You must capitalize and depreciate all improvements to the property in advance of putting the property on the market. Improvements prolong the use of the property or materially add to the property’s market value. On the other hand, you may freely deduct all repair expenses. A repair aims to keep your property in good working condition, not to increase the market value or prolong use. Within the Landlord’s Tax Guide there is more on deductions and depreciation, you’d like to read further.

Tax Accountant has written articles about accounting and tax related subjects for many years. He is a graduate of Washington State University and the University of Washington.

Kirkland CPAAbout Kirkland CPA
Kirkland CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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