Rental Property Expenses

Expenses paid on your rental property are reported on Lines 5 through 18 on Part I of Schedule E. The rules for most of these expenses are the same as those that apply to small businesses , or that apply to your home real estate taxes and mortgage interest (except that the $1,000,000 limit on deductible mortgage interest does not apply).

The major categories of expenses that you can deduct are listed on the front of Schedule E. In the following sections we discuss a few of the more important types of deductible expenses, and a few types of expenses that are often forgotten:

Warning

Beginning in 2013, a new 3.8 percent net investment income tax may be imposed on individuals whose modified adjusted gross income exceeds $250,000 for joint filers, $125,000 for married taxpayers filing separately, and $200,000 for others. Trusts and estates with income over a certain amount are also subject to the NII tax. Form 8960, Net Investment Income Tax— Individuals, Estates, and Trusts is attached to the tax return. For 2013, the IRS has provided taxpayers the ability to rely on more than one set of net investment income tax rules. The best choice varies by taxpayers and depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you.

Also, note that the IRS has issued new depreciation regulations that generally apply to tax years beginning on or after January 1, 2014. But, for 2012 and 2013, it also provided taxpayers with the ability to elect certain regulations. The best choice for each taxpayer depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you and your business.

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