Part 1: Tax Deducible Rental Property Expenses

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

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 an attorney at law to write a rental contract, or even to initiate legal action to evict an errant tenant, you can deduct these fees. On top of that, you’ll be able to deduct fees paid to a Redmond CPA for preparing the Schedule E of your return from the past year. Make sure to pro rate the total fee between the Schedule E and the remainder of the tax return dependent upon the percentage of time the respective sections of the return took. Any fees for preparation of any part of the return separate from Schedule E have to go on Schedule A as a personal tax preparing expense. Finally, in cases where you pay any commissions or management fees to a professional realtor for managing your rental, then you should deduct these payments too.

Redmond Accountant +John Huddleston has written numerous articles on accounting and other tax issues of concern to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.