Tax Deductible Rental Property Expenses, Part 1

Interest

The primary type of interest you will most likely deduct is interest on the mortgage. If you’re renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. Whereas, if you’re renting a room in your house, or if it is a duplex and you are living in the other unit, then you have to pro rate the mortgage expense. See the article titled Personal Use of Rental Property, included in this guide, for more on how to calculate personal use. Personal use mortgage interest always goes on Schedule A of your Form 1040 (not on Schedule E). Moreover, if you own only a part interest in the rental, you must multiply the total amount of mortgage interest paid on the property by your ownership interest. Be aware, however, that certain expenses you pay to obtain a mortgage (such as title/recording fees and commissions) are capitalized as part of your depreciable basis for the property, and are not expensed. See the article titled Depreciation Expenses for Rental Property, included in this Guide, for more on depreciation expense. Other types of interest may also be deductible, if you incurred the interest solely for the benefit of the rental property. For example, if you took out a personal loan in order to replace carpeting, or fix the roof.

Advertising

Ads in a local newspaper or any paid online marketing for example are deductible expenses when promoting a rental property on the open market.

Professional fees

If you pay a legal representative to pen a rental agreement or initiate legal actions so that you can evict a renter, you could deduct these payments. Also you can deduct fees paid to a tax preparer for the preparation of the Schedule E of your tax return from the previous year. Make sure you pro rate the complete fee between the rest of your return versus the Schedule E portion of you return based on time spent. Any fees unrelated to the Schedule E appear on Schedule A as personal tax preparation expenses. Also any commissions or management fees to professional realty groups for overseeing your rental property are deductible as well.

Tax CPA +John Huddleston has written prolifically on accounting and other tax related issues facing small business owners. He is a graduate of Washington State University and the University of Washington School of Law.