Landlords are often responsible for routine and ongoing maintenance tasks around their rental property. They clean the carpet, keep the lawn mowed, and perform basic upkeep. But when a tenant reports a plumbing issue or a mold problem in their apartment, issues outside the scope of normal ‘wear and tear,’ can a landlord charge a tenant for labor costs?
As a landlord, calculating costs can get tricky when it comes to landlord time-based expenses and labor. When it comes to deducting labor costs, you need to not only consider the amount of time spent on repairs but also the hourly rate for that labor.
Fortunately, there are several methods that can help you to accomplish this task.
When Can a Landlord Charge Tenants for Repairs?
Generally speaking, landlords are responsible for making sure that their rental properties are habitable—regardless of the repair costs.
This means landlords have to make sure their property is safe, clean, and in good repair before they rent it out. If the property is not in a habitable condition, tenants have a right to terminate their lease agreement.
Under normal circumstances, landlords are responsible for the cost of repairs, maintenance, and improvements to the property. They can’t pass those costs on to their tenants. But there are exceptions.
If the property needs work because of something a tenant has done, such as breaking a window or damaging a wall, the landlord can charge the tenant for the repair costs as long as that’s stated in the lease agreement.
The charges for materials and landlord labor must be reasonable. A landlord cannot inflate an expense just because he or she wants to make more money from it. Landlords have a fiduciary duty to act reasonably and prudently when it comes to expenses, so claiming that a $10 light switch costs $50 is not acceptable.
Can You Charge Tenants for Your Time and Labor as a Landlord?
As a landlord, you are entitled to be paid for your time and labor, but only within certain limits. In many states, charging a tenant for landlord labor can only be done if the tenant has violated the terms of the lease by not paying rent, causing damage, or otherwise breaching the lease.
To charge tenants for your time, you must first have a specific written clause in the lease allowing you to charge labor costs. Most leases do not contain such a clause because tenants expect that landlords will take care of property maintenance, as this is their business.
However, some landlords add clauses allowing them to charge labor costs on top of actual repair costs for issues above and beyond normal “wear and tear.”
For example, the lease may state that if the landlord must go out of his or her way to deal with something the tenant did wrong, the landlord can charge for their time and mileage.
A typical formula may allow a charge of $50 per hour plus $0.50 per mile traveled, on top of any actual repair costs or cash penalties imposed on the tenant due to their negligence or willful act.
Can You Deduct Landlord Labor and Time as an Expense on Taxes?
- You can deduct the cost of labor you hire to work on your investment property, but you must follow IRS guidelines. The IRS doesn’t allow you to deduct personal labor as a business expense because you cannot pay yourself with after-tax dollars.
- You can deduct the repair costs, insurance, and maintenance paid to outside contractors or workers, however.
- You can only deduct expenses that are directly related to earning income from your rental property. For example, if you hire a carpenter to repair an exterior doorway on your rental house, the cost is deductible because it relates to maintaining the value of your property and keeping your tenant safe.
- If you hire a carpenter to build cabinets for your house that you live in, that’s not an expense that’s related to renting out the house, so it’s not deductible.
- If a landlord is also the person who performs the repairs, they cannot deduct their time as a rental expense. Instead, the landlord should pay themself a reasonable salary and deduct that amount as a business expense.