Part 1: Tax Deducible Rental Property 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 promote your rental property and list it on the open market are deductible. For example, ads that you pay for in the local newspaper, or any Internet advertising you pay for, are deductible.

Professional fees

You can deduct professional fees incurred in connection with the rental. For example, if you paid a lawyer to write a lease, or even to initiate court proceedings to evict an errant tenant, you can deduct these fees. Also, you’ll be able to deduct charges paid to a Seattle Tax CPA or preparing the Schedule E of your return from the previous year. Be sure to pro rate the total preparation fee between the Schedule E and the remainder of your return based upon the percentage of time the respective sections of the return took. Any fees for the preparation of any section of the return separate from Schedule E must go on Schedule A as a individual tax preparing expense. And, when you pay any management fees or commissions to a realtor for overseeing your rental, then you will want to deduct those expenditures likewise.

Seattle Accountant +John Huddleston has written numerous accounting and tax related articles for small business owners. He is a graduate of Washington State University and the University of Washington School of Law.