Part 1: Tax Deducible Rental Property Expenses

This article from the Rental Property Tax Guide concentrates on the various types of expenses that you may deduct from your gross rental income so as to calculate your net rental income. Since there is a variety deductible expenses, this Rental Property Tax Guide breaks down the topic into four different varieties. This first chapter will focus on professional fee expenses, advertising, and interest incurred.

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

Any fees you incur to list your property on the open market and promote the property are deductible. For example, ads that you pay for from a local newspaper, or any Internet advertising you pay for, are deductible.

Professional fees

If you pay legal counsel to pen a rental agreement or start court actions to be able to evict a renter, it’s possible to deduct these expenses. Also you can deduct the fees of an accountant or Bellevue CPA for preparing the Schedule E of your return from the year before. 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 realtor groups for overseeing your property are deductible as well.

Bellevue Accountant has written numerous articles on accounting and other tax related matters of concern to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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

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