Deductible Rental Property Expenses, Part 1

There are quite a few deductible expenses associated with owning a rental property. In this write up we will focus on expenses regarding interest, advertising, and professional fees, these are expenses you may deduct from gross rental income so as to calculate your net rental income.

Interest

The primary type of interest you will likely be deducting is mortgage interest. If you’re renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. However, if you are renting a room in your home, or if it is a duplex and you are living in the other unit, you will have to pro rate the mortgage expense. For more on personal use, see the article entitled Personal Use of Rental Property, which is included in the Tax Guide for Landlords. Personal use mortgage interest will always go on Schedule A of your Form 1040 and not on Schedule E. Additionally, if you own only a part interest in the rental, you have 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

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

Professional Fees

You can deduct professional fees incurred in connection with the rental. For example, if you paid an attorney at law to write a rental agreement, or even to initiate legal action to evict a tenant, you can deduct these fees. Furthermore, you can deduct expenses paid to a CPA for preparing the Schedule E of your tax return from the year earlier. Take care to pro rate the total fee between the Schedule E and the remainder of your tax return based on how much time the sections of the return took. Any fees for preparation of any section separate from Schedule E must go on Schedule A as a personal tax prep expense. Also, whenever you pay any management fees or commissions to a realtor for overseeing your rental, you may deduct those payments likewise.

Tax Accountant has written numerous articles on accounting and other tax related issues concerning small business owners. He is a graduate of the University of Washington’s School of Law.

Seattle CPAsAbout Seattle CPAs
CPA for Dentists+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has been the owner of Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

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