Tax Deductible Rental Property Expenses, Part 1

This chapter of the Rental Property Tax Guide centers on the various deductible expenses of your gross rental income so as to figure the net rental income. Given that there is a variety deductible expenses, this Rental Property Tax Guide breaks the topic into four different types. This first part will give attention to 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

Ads in the 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 lease, or even to initiate court proceedings to evict a tenant, you may deduct these fees. Additionally, you’ll be able to deduct charges paid to an accountant/CPA for preparing the Schedule E of your tax return from the year earlier. Take care to pro rate the total preparation fee between the Schedule E and the rest of the tax return based upon how much time it took. Any fees for the preparation of any section of the return other than Schedule E have to go on Schedule A as a individual tax prep expense. Finally, in the event that you pay any management fees or commissions to a realtor group for overseeing your rental, then you should deduct these expenditures as well.

Seattle Accountant has written several articles on accounting and other tax related topics. He is a graduate of Washington State University and the University of Washington School of Law.

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Seattle CPAsAbout Seattle CPAs
Seattle CPAs+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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