Tax Deductible Rental Property Expenses, Part 1

Interest

If you’re renting a room in your home, or if it is a duplex and you’re occupying 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). Now if you are renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. Also, 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.

Advertising

Promoting your 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 incurred in connection with the rental. For example, if you paid legal counsel to draw up a rental contract, or even to initiate legal proceedings to evict a tenant, you can deduct these fees. Additionally, you’ll be able to deduct cost you paid to a CPA 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 tax return dependent upon the percentage of time the sections of the return took. Any fees for the preparation of any section of the return separate from Schedule E must go on Schedule A as personal tax preparation expense. Finally, if you pay any management fees or commissions to a realtor group for overseeing your rental, then you should deduct these expenditures as well.

Federal Way Tax CPA +John Huddleston has written multiple articles on accounting and other tax related subjects of interest to small business owners. He is a graduate of Wshington State University and the University of Washington School of Law.