Investment Home Tax Tips

For your benefit, we are providing the following excerpt from IRS.gov regarding allowable expenses that can be charged against your rental income.  Residential rental investment continues to be one of the best investments you can make and, as with any investment, proper planning and record keeping is crucial to maximizing the benefits to you.

More information is available at https://www.irs.gov/publications/p527/ch01.html

Here are few snip-it tips from the above site:

Rental Expenses

In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.

Personal use of rental property.   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Also, your rental expense deductions may be limited. See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home).

Part interest.   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership.

 

When To Deduct

You generally deduct your rental expenses in the year you pay them.

If you use the accrual method, see Pub. 538 for more information.

Types of Expenses

Listed below are the most common rental expenses.

  • Advertising.
  • Auto and travel expenses.
  • Cleaning and maintenance.
  • Commissions.
  • Depreciation.
  • Insurance.
  • Interest (other).
  • Legal and other professional fees.
  • Local transportation expenses.
  • Management fees.
  • Mortgage interest paid to banks, etc.
  • Points.
  • Rental payments.
  • Repairs.
  • Taxes.
  • Utilities.

Some of these expenses, as well as other less common ones, are discussed below.

Depreciation.   Depreciation is a capital expense. It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property.

You can begin to depreciate rental property when it is ready and available for rent. See Placed in Service under When Does Depreciation Begin and End in chapter 2.

Interest expense.   You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Pub. 535 explains mortgage interest in detail.

Form 1098, Mortgage Interest Statement.   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Attach a statement to your return showing the name and address of the other person. On the dotted line next to line 13, enter “See attached.”

Legal and other professional fees.   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. For example, on your 2016 Schedule E you can deduct fees paid in 2016 to prepare Part I of your 2015 Schedule E. You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities.

 * We encourage you to consult a qualified tax professional regarding any of this information as you prepare to report your rental investment income and related deductions. *