Tax Deductible Rental Property Expenses, Part 1

Interest

The primary type of interest you will most likely be deducting is interest on the mortgage. If you are renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. Meanwhile, if you are renting a room in your home, or if it’s a duplex and you’re living in the other unit, then you’ll 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). Additionally, if you own only a part interest in the rental, you will need to 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

Promoting a rental property on the open market, through marketing efforts such as posting newspaper ads or paying for internet marketing, is a tax deductible expense.

Professional fees

You can deduct professional fees you incur in connection with the rental. For example, if you paid an attorney to draft a lease, or to initiate court proceedings to evict a tenant, you may deduct these fees. And additionally, it’s possible to deduct cost paid to a CPA for preparing the Schedule E of your tax return from the past year. Make sure to pro rate the total preparation fee between the Schedule E and the remainder of your return dependent upon the percentage of time it took. Any fees for preparation of any part of the return other than Schedule E will go on Schedule A as personal tax prep expense. Finally, in the event that you pay any management fees or commissions to a professional realtor for managing your rental, you can deduct these expenditures too.

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