[OntoBetterThings]

NINJA Question –

Alex and Phyllis also leased out two rental properties, which they solely maintain, to graduate students attending the local university. The following information pertaining to the rental properties is given:

1. Property A was rented on April 1 for $900 per month. In addition, the tenant paid $900 as a security deposit with his first rent payment. The security deposit will be returned at the end of the first year. The property was vacant during the first three months of the year.

2. Property B has been continuously rented for the past two years. The current tenant pays $750 per month. Along with his December rent, the tenant prepaid the first two months ($1,500) of 2014. In addition, he made repairs to the property in lieu of paying his October rent payment.

3. The insurance policies were paid on January 3, 2013, and they cover 2013 and 2014 calendar years.

In addition to the above rental income information, the following expenses were incurred by Alex and Phyllis on the properties:

Alex and Phyllis’s Rental Property Expenses

Property A Property B

Expenses:

Advertising $ 350 $ 0

Cleaning 425 0

Insurance coverage 720 560

Repairs 625 0

Painting 300 0

Mortgage interest 2,800 2,400

Property taxes 2,800 2,200

Property depreciation 2,100 1,500

Travel costs to the properties 125 100

Complete Schedule E below by putting the proper amounts in the shaded cells. If the value of a cell is zero, you must enter a zero (“0”) to receive credit for your answer. Use dollar amounts only (i.e., no cents).

7 Cleaning and maintenance 7 425 0

14 Repairs 14 625 750

Line 7: The cleaning and maintenance expenses are given in the Rental Property Expenses table under “Cleaning.”

Line 14: Because the tenant in Property B made repairs to the property in lieu of the October rent payment, the $750 rent payment amount is deductible as repairs and also included in rent received.

Can someone help me understand why the $300 for pain is not accounted for under repairs? If it does not meet the IRS definition of a “repair”, what prevents us from accounting for it under maintenance? Help me out, I am a bit lost with this one as the explanation does not mention it.