Personal Versus Business Usage

• Before discussing the areas in which rental expenses may be deducted, it is important to understand when they may not be deducted. Rental expenses may not be deducted when related to a property that is used only for the taxpayer's personal enjoyment and not for purposes of a trade or business. When rental expenses are incurred related to the operation of a trade or business, they are almost always deductible.
  
  

Home Office

• The home office deduction is a valuable deduction that may allow individual taxpayers to deduct a portion of rent paid for a personal residence if a portion of the personal residence is used for a business purpose. In order to claim this deduction, the taxpayer must designate an area of the rented residence exclusively for business usage. In a multiroom property, this may be a den where the taxpayer keeps a computer and business files. Importantly, the home office must be the principal place of business -- meaning an employee who works four out of five days in an employer's office is typically not eligible for the deduction.
  
  

Investments

• Taxpayers may deduct rental expenses incurred in the monitoring and upkeep of individual investments. These rental costs do not necessarily need to be office spaces. They may include the rental of third-party storage facilities or even safety deposit boxes at banks or other facilities. The deduction for these rental costs, however, is limited. These deductions are categorized as miscellaneous deductions, and individual taxpayers may deduct them only to the extent that these costs and all similarly categorized costs exceed 2 percent of the taxpayer's adjusted gross income.
  
  

Maintenance and Leasehold Improvements

• Generally, in addition to rental costs, a business may deduct any incidental costs related to the maintenance and upkeep of that rental property. These costs include minor repairs to the property not paid by the landlord. Major capital improvements to the rental property are not immediately deductible. The Internal Revenue Service (IRS) considers these to be leasehold improvements. Leasehold improvements must first be capitalized (recorded as an asset for tax accounting purposes), and then they may be deducted over the life of the asset, typically 15 years for IRS purposes.