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

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 incurred in connection with the rental. For example, if you paid legal counsel to write a rental agreement, or even to initiate court proceedings to evict an errant tenant, you may deduct these fees. And additionally, you are able to deduct cost paid to an accountant/CPA for preparing the Schedule E of your return from the past year. Be sure to pro rate the total preparation fee between the Schedule E and the rest of your tax return based upon the percentage of time the sections of the return took. Any fees for preparing any part of the return other than Schedule E will go on Schedule A as individual tax preparation expense. Finally, when you pay any management fees or commissions to a professional realtor group for managing your rental, then you should deduct those expenditures also.

Seattle CPA +John Huddleston has written numerous articles on accounting and other tax related issues facing small business owners. He is a graduate of Washington State University and the University of Washington School of Law.