Deductible Rental Property Expenses, Part 1

Interest

The primary type of interest you will likely be deducting is mortgage interest. 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, when you’re renting a room in your own home, or if it’s a duplex and you are living in the other unit, you will need 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 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 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

You can deduct professional fees you incur in connection with the rental. For example, if you paid a law firm to create a lease, or to initiate court proceedings to evict an errant tenant, you can deduct these fees. On top of that, you are able to deduct expenses paid to tax preparer for preparing the Schedule E of your return from the year earlier. Make sure to pro rate the total preparation fee between the Schedule E and the rest of your return based on how much time the sections of the return took. Any fees for preparing any section of the return other than Schedule E must go on Schedule A as personal tax preparation expense. Also, should you pay any management fees or commissions to a realtor for managing your rental, you should deduct these expenditures also.

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