Deductible Rental Property Expenses, Part 1

This segment the Landlord Tax Guide focuses on the different types of expenses that you may deduct from your gross rental income in order to determine net rental income. As there are so many deductible expenses, this guide breaks down the topic into four different kinds. This first post will give attention to interest, advertising, and professional fee 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

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

Professional fees

You can deduct professional fees you incur in connection with the rental. For example, if you paid a lawyer to write a rental contract, or to initiate legal action to evict a tenant, you may deduct these fees. On top of that, one can deduct charges you paid to an accountant 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 the return dependent upon the percentage of time it took. Any fees for preparing any section of the return other than Schedule E have to go on Schedule A as a personal tax prep expense. And, in the event that you pay any commissions or management fees to a realtor group for managing your rental, you may deduct these expenditures as well.

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

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