How to Deduct a Rental Home

Rental properties have many expenses to help offset your income tax burden.

Rental property owners can employ many tax deductions to help realize a positive cash flow each month. Tax write-offs are an important part of the real estate business, and care must be taken to ensure no deduction is overlooked. In general, your rental income and expenses are deductible in the year they are received or paid; keep careful records and all receipts related to your rental home to facilitate your income tax return.

Things You'll Need

• Bank statements
• Rental income receipts
• Maintenance or repair invoices
• Mortgage interest statement
• Property tax statement
• Insurance premium
• Canceled checks
• Original mortgage papers
• Receipts
• Form 1040
• Schedule A, Itemized Deductions
• Schedule E, Supplemental Loss and Income

Instructions

1. Gather your records that document the income for the rental home. Generally, you must include in your gross income all rent received, including advance rent in the year you receive it. This may be documented by bank statements or copies of rent receipts given to the tenant.

2. Tally your expenses for the home. Search for invoices for maintenance, repair, mortgage interest statements and property taxes you paid during the tax year. Locate insurance premiums paid for the rental home. Include private mortgage insurance payments, if any. Add advertising costs for the rental, welcome gifts for the tenant, commissions or property management fees.

3. Itemize your vehicle and travel expenses. If your rental is a distance from your home, you might need to drive or travel to check the property, perform repairs, collect rent or handle other matters related to the rental home. All travel expenses, including gasoline and automobile expenses, hotels, meals and entertainment are tax-deductible if they are used exclusively for the rental and do not include personal vacation time or non-rental expenses. The travel expenses must be "ordinary and necessary," according to the IRS.

4. Locate your credit card statements. Any credit card used to purchase goods or services for your rental property is deductible in full the year it is paid. This rule is a major exception for the normal rule that credit card interest is not deductible.

5. Calculate your business administrative expenses for the rental -- for instance, your office rental or qualified home office expenses, tax return preparations, cleaning fees and legal or professional fees, homeowners association dues, subscriptions, publications, depreciation, salaries or wages.

6. Sum up your receipts and canceled checks for your expenses. Report rental property activity on Schedule E, Supplemental Loss and Income, Part 1. List your expenses on Schedule E, Line 16. Include your adjusted income on Line 17, Form 1040.

References

• "J.K. Lasser's Real Estate Investor's Tax Edge"; Scott Estill, Esq.; 2010
• IRS.gov: Rental Income and Expenses - Real Estate Tax Tips
• IRS.gov: Publication 527 (2010), Residential Rental Property