Real Estate Agents who file Schedule C deduct the cost of Repairs and Maintenance on Line 21. Fortunately, with a few exceptions, items deducted as repairs and maintenance are pretty straight-forward. Before we dig into the deduction’s details, let’s define the terms repair and maintenance.
Repairs are activities that restore an asset to its proper, functional condition. The asset is broken or damaged, and the repair brings it back to its operational condition or correct appearance.
Maintenance, on the other hand, keeps an item functioning correctly. Maintenance is preventive in nature – it avoids malfunction and the necessity of repairs.
Repair and Maintenance deducted on Line 21: Expenses that fix or restore tools, equipment, or other assets to their proper functioning condition or keep them in good working condition are deductible on Line 21. Deductible expenses include, but are not limited to:
- Fixing a business computer with a broken hard drive
- Paying the computer technician to remove a virus on a computer
- Patching a hole in an office wall (other than a home office)
- Completing items on a punchout list before a final walkthrough (if not reimbursed by the buyer or seller).
- The cost of a maintenance contract on a rented office, if not included in the rent.
- Maintenance contracts on office equipment
- Servicing or fixing lawn equipment used to maintain the office lawn and listed properties
- Office or business-related snow removal
- Groundskeeping service for the office or listings
- Repairing the HVAC in a rented office.
Repairs and Maintenance not Deducted on Line 21: As with many, if not all, Schedule C deductions, some repair, and maintenance expenses get deducted elsewhere, not on Line 21. These include:
- Repairs and Maintenance for Business Autos are deducted as Car and Truck Expense on Line 9 when deducting actual auto expenses. For more information on deducting Actual Auto Expenses, please read our article Real Estate Agents, Deducting Auto Expenses: The Actual Cost Method.
- Home Office Repairs and Maintenance get deducted on Form 8829, Expenses for Business Use of Your Home when claiming actual home office expenses, as discussed in our article, Real Estate Agents, Home Office Deduction: The Actual Cost Method.
- Cleaning Supplies for your (non-home) office are an Office Expense.
Beware of Improvements: Some costs that seem like repairs, but which 1) Prolong the life of an asset (beyond its natural life), 2) Increase its value, or 3) Adapt it to another function, are not repairs or maintenance. These costs are improvements. Improvements do not get expensed. They’re capitalized, meaning they become part of the value of the asset improved. Assets get depreciated when required. Improvements can be challenging to discern from repairs and maintenance activities, so here are a few examples:
- Replacing the entire wall is an improvement. Fixing a hole in the wall is a repair.
- Replacing all the carpet in the office is an improvement. Removing a stain or mending a tear is a repair.
- Adding a second hard drive to a computer is an improvement. Replacing a damaged hard drive is a repair
- Putting a new bed on a business truck is an improvement. Patching some rust holes is a repair.
Improvements get depreciated when their costs exceed a certain threshold. Depreciation can be complicated and is one of the tax-issues for which we recommend hiring a tax professional. If you would like to learn, please read our article, Real Estate Agents, Depreciation Expense. Our Real Estate Agent Tax-Cut Library also covers asset depreciation.
Form 1099-MISC: When an individual or business provides a service to your business, you may be required to send them Form 1099-MISC. Repairs and maintenance require 1099 reporting when service payments to unincorporated providers exceed $600 during the calendar year. For more information on the importance of filing Form 1099-MISC, please read our article, Form 1099-MISC Noncompliance Can Literally Destroy Your Business. If you’re interested in learning how to send them, check out our Form 1099-MISC Basics course.
Take Away: Rents get deducted on two lines of Schedule C, Line 20a, and Line20b. The renting of Vehicles, Machinery, or Equipment (aka Stuff) gets deducted on Line 20a. Rent paid for Other Business Property (aka Space) is deducted on Line 20b. As with many lines on Schedule C, ask yourself “why” why you rented each item. The answer, especially if it’s to promote your business, may result in the rent’s deduction on a different line. Rent paid during the calendar year may require sending a Form 1099-MISC to the recipient.
Summary and Invite: We hope this article has helped you better understand the deductibility of Rents on Schedule C. If you’d like to learn more about cutting your highest cost: TAXES, check out our Real Estate Agent Tax-Cut Library. The Real Estate Agent Tax-Cut Library includes over eight hours of video broken into twenty-nine searchable volumes and covers every possible deduction a Real Estate Agent can take on their tax return. Our Broker Version will help your entire agency cut their taxes! We also invite you to browse our courses.