Tax Deductible Rental Property Expenses, Part 1

There are several deductible expenses linked to owning a rental property. In this write up we will focus on expenses regarding professional fees, interest, and advertising, these are expenses you may deduct from gross rental income in order to calculate the net rental income.

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

If you pay a lawyer to make a lease or start legal proceedings for you to evict a tenant, you can deduct these payments. You may also deduct the fees of a tax accountant for the preparation of the Schedule E of your return from the year prior. Be sure you pro rate the overall fee between the rest of your return versus the Schedule E portion of you return based on time spent. Any fees unrelated to the Schedule E appear on Schedule A as personal tax preparation expenses. Also any management fees or commissions to professional realty groups for managing the rental property are deductible as well.

Seattle Accountant has written prolifically on accounting and other tax related topics concerning small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

Burien CPAAbout Burien CPA
Burien CPA+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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