Rental property maintenance expenses are typically tax deductible, but they also can make the difference between having positive and negative cash flow.
Rental homes that are well maintained can generate fair market rents and attract good tenants. Deferred maintenance can lead to more costly repairs and longer vacancy periods with no rental income.
Knowing the types of maintenance expenses to expect can help investors to evaluate potential purchases more accurately and to prepare better budgets for both planned and unexpected maintenance costs.
- Rental property expenses are necessary for maintaining a property in its current condition and providing a safe and habitable home for a tenant.
- A well-maintained home may attract more qualified tenants willing to pay fair market rent.
- Expenses for rental property maintenance can be deducted from net operating income when the repair cost is incurred.
What are common rental property maintenance expenses?
There are 2 types of expenses related to rental property condition: maintenance expenses and capital expenses. Both expenses are deductible, but in different ways.
According to the Internal Revenue Service (IRS), capital expenses are improvement costs made for the betterment or restoration of a rental property or for adaptation to a different use. An example of betterment is replacing a roof, while an adaptation could be converting a basement into a studio apartment for rent. Investors recover the cost of improvements through depreciation over a fixed period of time.
On the other hand, maintenance expenses are necessary expenses for managing, conserving, and maintaining rental property. Maintenance expenses include fixing a leaking pipe, replacing dirty air filters, and landscaping. The cost of maintenance expenses is deducted from rental income at the time the cost is incurred.
Let’s look at some of the common rental property maintenance expenses to be aware of, along with unexpected expense deductions.
16 rental property maintenance expenses
Here are 16 maintenance expenses to expect when owning a rental property.
Not all of the following expenses apply to every type of rental property. For example, while multifamily landlords may directly pay for electric or other utilities in a multifamily property and factor the cost into the monthly rent, tenants typically pay for their own utilities in a single-family rental (SFR) home.
1. Appliance maintenance
Appliances that belong to a landlord, such as a refrigerator, stove, oven, microwave, or washer and dryer, may need to be periodically serviced to extend their useful lives and keep replacement costs lower.
Mechanical systems such as electrical; plumbing; heating, ventilation, and air conditioning (HVAC); and water heaters should also be serviced, typically before summer and winter to avoid a burst pipe in the dead of winter or the air-conditioning system going out in the middle of a heat wave.
A rental property is usually deep cleaned during tenant turnover to make a home rent-ready for a new tenant. This may include sanitizing the kitchen and bathrooms, dusting from top to bottom, scrubbing walls and fixtures, and steam-cleaning carpeting and flooring.
3. Emergency repairs
Sometimes items need to be unexpectedly repaired, such as an overflowing toilet or a water heater pilot light that won’t stay lit. A landlord can prepare for the unexpected by having money set aside in a reserve account and being reachable 24/7 to address health and safety issues.
Minor repairs to floor coverings may need to be made during a tenant’s occupancy and between tenant turns. A professional cleaning company can typically make cosmetic repairs and have treatments to make older flooring look brand new.
5. General repairs and maintenance
Routine repairs and maintenance include tasks such as repairing water leaks, caulking door and window seals, patching a worn carpet, replacing tile or roof shingles, and fixing a broken landscape sprinkler head. Conducting periodic property inspections can help catch minor problems before they become big and expensive.
6. Homeowner association (HOA) dues and fees
Monthly HOA fees and dues can easily be obtained from the HOA management company. When purchasing a rental property, it’s a good idea to ask about any planned fee increases or special assessments and request copies of the HOA’s balance sheet and income statement.
Rental property is inspected when a tenant moves out and periodically throughout the tenancy. Landlords or their property management companies generally perform interior inspections every 3 to 6 months, after giving the tenant proper notice, and do occasional exterior drive-by inspections at different times of the week, including evenings and weekends.
8. Landlord insurance
Landlord insurance is specifically designed for people who rent out their homes and typically includes both liability and property protection. Factors affecting an annual landlord insurance premium include the type of coverage, deductible amount, and the number of claims filed for the property from current or previous owners.
Depending on where a rental property is located, landscaping costs may be the same throughout the year or vary based on the season. Although landlords may make lawncare the tenant’s responsibility, it is ultimately up to the landlord to make sure a home has curb appeal and meets the standards of the HOA or local zoning laws.
A fresh coat of paint can make a rental property look almost brand new and take care of normal wear and tear, like scuff marks and scrapes. While it may be tempting to paint a home in designer colors, colors have a way of going in and out of fashion. To avoid having to repaint the entire house frequently, landlords may wish to consider using a generic off-white that is relatively inexpensive and easy to match.
11. Pest control
Common pests to be on the lookout for include ants, termites, reptiles, rodents, and wasps. Depending on where the rental property is located, pest control may be required monthly or annually. Landlords may wish to budget for one-time infestations, such as bees or squirrels who figure out how to invade the attic.
12. Property management fees
Some owners self-manage their rental properties, while others engage the services of a professional local property manager. Property management fees vary by company and location but generally run 8-12% of the monthly rental income received. Some managers charge one-time fees for leasing or renewing a lease, overseeing major improvement projects, or performing periodic inspections.
13. Property taxes
Property taxes can take a big bite out of potential profits and are difficult to control. While purchasing a rental property where taxes are high isn’t necessarily a bad decision, it’s essential to look at historical property tax hikes before buying to learn if property taxes might increase if an owner-occupied home is converted to rental property.
A capital expense (CapEx) account is a savings account that landlords use to save money for items that will eventually need to be replaced due to normal wear and tear, such as appliances and heating and cooling systems.
15. Seasonal maintenance
Examples of seasonal maintenance tasks include snow removal in winter climates, cleaning rain gutters in the fall and spring, and pruning shrubs and trees back from the property and power lines.
Tenants typically have their own utility accounts to pay directly for electricity, water, sewer, and trash charges. A small multifamily property may have a master meter with utilities paid by the landlord or a common-area meter for outside lighting or a laundry room. During tenant turnover, utilities for both multifamily properties and SFRcan be transferred into an owner account rather than being turned off.
How to easily keep track of rental property maintenance expenses
While it’s possible to manually track expenses using a handwritten ledger or spreadsheet, it’s also easy to forget to enter a deduction that can help to reduce taxable net income.
That’s why many landlords automate income and expense tracking by using a software system such as Stessa to manage rental property finances. After signing up for a free account, entering a rental property address, and linking bank and mortgage accounts, financial performance statistics come to life on the comprehensive owner’s dashboard.
Free rental property software from Stessa, a Roofstock company, can be used with an unlimited number of portfolios and individual SFRs, small multifamily buildings, and short-term vacation rentals. Stessa can automatically track income and expenses and generate financial reports, such as income and net cash flow statements. Stessa users also have access to free resources in the Stessa Tax Center help to make tax preparation a breeze.