In addition to deducting depreciation for your rental property, you can deduct expenses related to its upkeep. Renting a house is very much like running a business in that you must maintain the property in which you have an investment. According to the Internal Revenue Service, as long as the new carpet is needed to maintain the home’s value and not increase its value, you can deduct the purchase and installation of the flooring in the year you purchased it.
As a landlord, you often collect a security deposit to pay for damage done by the tenant. The deposit is considered income on your taxes. However, if your tenant damages the carpet, requiring its replacement for you to rent the house again, you can deduct that expense while keeping the tenant’s deposit. If a tenant pays you directly for the new carpet after damaging it, you should include the cost as both income and expense on your tax return.
If you are a traveler who rents your house out for a portion of the year, you can deduct a percentage of the money you pay to replace damaged carpet in your home. For example, if you live in your house for six months out of the year and rent it out for six months, you can deduct 50 percent of the cost for new carpet when it is necessary to maintain the value of the place. Likewise, if you are a partner in the ownership of the rental house, you can only deduct a percentage of the costs. If for example, you share ownership with two siblings, you can deduct one-third of the expenses required to maintain the house. At the same time, you only report one-third of the income.
New carpeting in your rental property cannot be deducted completely from your taxes when you install the flooring to improve the look of the house and increase its value. Instead, you must treat the new carpeting as a capital expense for your rental business and depreciate the cost over time. Just as you depreciate the value of the house each year on your taxes, you can treat the improvement as a separate capital purchase with its own depreciation schedule. Other improvements commonly depreciated from rental property include new doors, room additions and filtration systems. They are all treated as investments in your rental business, thus qualifying for depreciation deductions.
You can begin to depreciate the costs associated with the new carpet on the day your tenants begin using it. For example, if you purchased the carpeting and pad in December, but the installers didn’t lay the new carpet until January, you cannot begin the depreciation cycle until the new tax year begins in January and the carpeting is ready to use. You may continue to depreciate the costs of the carpet even if you don’t have a tenant, as long as the home is available for tenancy. Additionally, the labor involved in installing the carpet is deductible although any time you put into the project is not.
Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."