Income and Investments About Rental House Tax Deductions Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxBlogTeam Published May 25, 2011 - [Updated Jul 18, 2019] 3 min read When you purchase a home with the intention of generating rental income, the IRS treats it more like a business or investment than a personal residence. The tax law permits you to claim tax deductions for the expenses that relate to this investment property. However, if you also use the home for personal purposes during the year, you may need to allocate expenses between the nondeductible personal use and deductible rental use. Read on for more about residential rental property. Allocating between rental and personal use The IRS does allow a certain amount of personal use of a secondary home without requiring you to do an allocation. However, if you use the home for the greater of 15 days, or more than 10 percent of the days the home is rented, you cannot claim a deduction for all expenses. You then must allocate the expenses between the two types of uses, based on the ratio of personal-use days to days you collect rent. For example, if you spend 25 days in the home for vacation, and rent it out to tenants for 75 days during the rest of the year, then only 75 percent of your expenses for the home are deductible. However, if you limit your use of the home to five days out of the year, then no allocation is necessary and you can deduct all of the expenses. Deductible rental house expenses Common deductible expenses of maintaining a rental property include the cost of advertising the home to prospective tenants, cleaning the home after each tenant vacates, commissions and fees you pay to a management company, state and local property taxes and utility service and insurance premiums. Additionally, you can claim annual depreciation deductions to recover a portion of the home’s tax basis each year. Generally, the tax basis of the property is equal to its purchase price, settlement costs and the cost of making permanent improvements to the property that increase its value. Rental house mortgage interest Just like the interest you pay on a mortgage to finance the purchase of a personal residence, the interest payments on a loan to acquire a rental property are also deductible. However, the amount of interest you may deduct in a year cannot exceed your net investment income. Net investment income is the total profit you earn on all rental properties you own before reducing it by interest payments. At the end of the year, if you incur a loss or have minimal net investment income, it is unlikely you can fully deduct interest payments. You can, however, carry the nondeductible interest payments forward to any future tax year that you have sufficient net investment income. Reporting rental house deductions Taxpayers must report all rental income and deductible expenses on the Schedule E attachment to a personal income tax return. However, if renting houses is your primary occupation, and you actively participate in daily operations, you may need to file the Schedule C attachment instead. Sole proprietors use Schedule C to report the earnings and deductions of a business they actively engage in. Regardless of which schedule you prepare, IRS Form 4562 may also be necessary if you claim depreciation deductions. Entering income from a rental property on your tax return is easy with TurboTax. Previous Post Should you use your 401(k) money to pay off your… Next Post What is an IRS 1099 Form? (Definition & Form Differences) Written by TurboTaxBlogTeam More from TurboTaxBlogTeam 5 responses to “About Rental House Tax Deductions” Great!! I think you have shared an informative post for the rental property owners. Thanks for sharing. Reply May I simply say what a comfort to uncover someone that genuinely understands what they are discussing on the net. You definitely realize how to bring a problem to light and make it important. A lot more people must read this and understand this side of your story. I was surprised you are not more popular given that you surely possess the gift. Reply You have provided a great news to the people who mostly visit out of station for a long time and want tax saving. Thanks for sharing that informative post. Reply YOU HAD DEPRECIATION Reply I filed form 1040 with schedule E; form 4562 on January 26, 2013. My status is still “pending”. Could you please tell me why? Reply Leave a ReplyCancel reply Browse Related Articles Business Income Is This Tax Deductible? Tax Tips for Landlords and Vaca… Income and Investments Rental or Self-Employment Income? How Is Airbnb Income … Income and Investments Renting Out Your Home for the Super Bowl, Long Term or … Home How Does Your Vacation Home Affect Your Taxes? Tax Tips Tax Tips for Second-Home Owners Income and Investments Tax Tips for Those Renting Their Home on Airbnb Home How Do Property Taxes on Second Homes Work? Tax Deductions and Credits 7 Crazy Things People Have Deducted Home Podcast: Are Home Improvements Tax Deductible? Tax Planning Your Personal Tax Prep Checklist – Check Off These Do…
Great!! I think you have shared an informative post for the rental property owners. Thanks for sharing. Reply
May I simply say what a comfort to uncover someone that genuinely understands what they are discussing on the net. You definitely realize how to bring a problem to light and make it important. A lot more people must read this and understand this side of your story. I was surprised you are not more popular given that you surely possess the gift. Reply
You have provided a great news to the people who mostly visit out of station for a long time and want tax saving. Thanks for sharing that informative post. Reply
I filed form 1040 with schedule E; form 4562 on January 26, 2013. My status is still “pending”. Could you please tell me why? Reply