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

Fees you incur to promote your rental property and list it on the open market are deductible. For example, classified ads that you buy in a local newspaper, or any expenses in online advertising, are deductible.

Professional Fees

You can deduct professional fees incurred in connection with the rental. For example, if you paid a lawyer to draw up a rental agreement, or even to initiate court proceedings to evict a tenant, you can deduct these fees. Furthermore, it’s possible to deduct cost paid to a certified public accountant for preparing the Schedule E of your tax return from the past year. Be sure to pro rate the total preparation fee between the Schedule E and the rest of your return based 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 personal tax preparation expense. Also, in cases where you pay any commissions or management fees to a realtor group for managing your rental, you can deduct those expenses too.

Tax Accountant +John Huddleston has written prolifically 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.