I just bought a house last year and am renting out a room. Can I deduct home improvements like garage repairs/improvements, etc?
— PopCrush (@PopCrush) December 3, 2013
Yes, with restrictions.
You must report the rent you receive as rental income on Schedule E. You can deduct expenses on a prorated basis, and others not at all, and certain expenses are capital improvements that must be depreciated over a period of time.
For example: You repair or improve your garage. Your tenant gets no use of the garage, only parking space in the driveway. You cannot take any expense or depreciation on the garage.
You replace the roof. That is a capital improvement which is depreciated over the life of the roof, not an expense taken all in one year. Based on the percentage of the property that you are renting out, you are entitled to the same percentage of the depreciation as a deduction against rental income. Any expenses must be prorated by the same percentage unless they are direct expenses, such as advertising cost for finding a tenant.
If you do take any depreciation, you must account for it when you eventually sell the property. That depreciation must be recaptured if it results in a gain. The reason being, in theory, the property depreciates in value, while in the real world, property generally appreciates. You are being allowed to take a loss that you really aren't suffering.
This situation, especially when splitting of costs between personal and business use is involved, is best handled by a tax professional.
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