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If you own rental real estate, you should be aware that all rental income must be reported on your tax return, and in general the associated expenses can be deducted from your rental income. These expenses may include mortgage interest, property tax, operating expenses, advertising depreciation, utilities, insurance and repairs.

You can deduct the cost of repairs that you make to your rental property. A repair keeps your property in good operating condition and does not materially add value to the property. Examples are painting, fixing leaks and replacing broken doors or other parts of the rental property. You can deduct the expenses paid by the tenant if they are deductible rental expenses.

When you include the fair market value of the property or services in your rental income, you can deduct that same amount as a rental expense.

You may not deduct the cost of improvements. An improvement adds to the value of your property, prolongs its useful life, or adapts it to new uses. Examples are adding a deck, a new fence or roof. The cost of improvements is recovered through depreciation.

Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.