I have a rental property, and I spent about $25000 to repair and remodel it, can I deduct this expense from my rental income, and how?

thanks. the screen asked me:Did you buy any items that each cost $2,500 or less in 2015? what's that mean?  I  replaced new furnace cooling system, new windows, new kitchen counters,etc everything each over @2500, shall I answer NO? Thank you

In TurboTax Premier, go to Federal Taxes>Wages and Income>Rental Properties and Royalties. Then answer the Rental questions (again) until you arrive at the Rental Summary.

Find your property, and choose EDIT. As you go through more questions about the property, including the purchase price, you will reach the page "Any Property Improvements Made?"

But remember, that's only if you remodeled the property before you placed it in service as a rental. If  this isn't your first year, and you made the improvements later, use the Depreciation section in the screenshot shown above. If your improvements qualify, you may be able to claim them as an expense rather than depreciate them, and TurboTax will ask you about them on the screen "Let's see if you qualify to claim these improvements as expenses." See the screenshot in my answer, which I have edited above.

@BobWattsi There is a special allowance for rental real estate activities that allows landlords who actively participated in their real estate activity to deduct up to $25,000 in rental losses. The allowable amount phases out between $100,000 and $150,000.

 

There is no limit to the amount of qualified rental expenses you can deduct, except when the expenses put you in the loss limitation situation. Any losses in excess of the allowable amount are suspended and will offset future profit. Any unused losses can be deducted in the year of sale.

The IRS uses a calendar year so a renovation can last more than one tax year. However, you will only be able to deduct expenses in the year actually paid.

 

Not actively rented. If you are not renting a property while under renovation, then you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. However, you can’t deduct any loss of rental income for the period the property is vacant.

 

If the property isn’t held out and available for rent while listed for sale, the expenses aren’t deductible rental expenses. Those expenses would be added to the basis.

 

Repairs versus improvements. You can deduct repairs, but must capitalize (spread the deduction over years) of an improvement. Repairs are any expenses of maintaining a property in its present condition. Improvements are expenses which result in a betterment of your property including expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property.

 

For more on rentals see IRS Publication 527.

Yes, the owner of the property can expense the cost of what appears to be an improvement of the backyard.  There is a significant difference between a repair of property versus an improvement of a property.  Given the condition of the backyard you described, if the owner decides to make the backyard more suitable for your children, it would appear that such changes would fairly be characterized as improvements, and thus would need to be capitalized.  In other words, the owner would depreciate the cost of the improvements made to the backyard over a period of 15 years.

 

In connection with expensing the improvement costs to the backyard, the owner may also be able to take advantage of bonus depreciation.  Assuming the property qualifies, the owner may be able to elect bonus depreciation and expense the entire cost of the improvements in the year the money is spent. 

 

Below is a link to a TurboTax article which you may find helpful.  

 

Rental Depreciation and How Does it Differ from an Expense