Tax Deductions for Tenant Screening Fees

If you pay an outside source to conduct tenant screenings, such as background checks or credit history, the IRS allows you to deduct those costs as a business expense—even if you collect funds from potential tenants for the service.

Because landlords need to ensure that potential tenants are financially able to pay the rent on time, these costs are considered an ordinary and necessary operating expense for tax purposes. Proper tenant screening will provide you a complete picture of a tenant's credit history, greatly reducing the financial risk of selecting someone who cannot pay the rent or who has a history of late payments.

Most landlords charge potential tenants a fee for the screening or include the cost in the application fee. Before charging a fee, it is a good idea to check your state and local laws because some states, such as California, limit the amount you can charge.

In most cases, landlords are not allowed to make a profit from application or tenant screening fees, so if you run the checks yourself, the fee is not deductible.