For rental property owners, income collected from rental property should be filed on Schedule E (supplemental Income and Loss). Security deposits are not income until the owner is no longer going to return it. A cancelling payment or payment for improvements to the property is taxable.

Expenses for rental property that are deductible are: 

  • Mortgage interest 
  • Property taxes
  • Insurance
  • Travel Expenses 
  • Legal or Professional fees
  • Advertising 
  • Utilities 
  • Cleaning and maintenance fees
  • Repairs, including labor costs
  • Supplies 
  • Pest control, lawn care, and trash disposal 
  • Credit checks for tenants 
  • Management fees

Repairs are also deductible, but improvements are not. A repair is considered to keep the property in operating condition. An improvement adds value to the property. When refinancing a property, the interest on the mortgage will be traced to the use of the proceeds. If the proceeds are used to by a personal residence, the interest paid will not be deductible. Same goes for the purchase of personal-use assets, as personal interest is never deductible. 

The sale of a rental property is a business asset meaning that any gain is capital gain. Loss on the sale of property is an ordinary loss and deducted in full against other income. 

We are here to answer your tax questions. Call, fill out the contact us form, or stop in at any of our five locations today for a conversation oh how we can assist you.

For additional information on casualty and theft loss for taxes, refer to the National Association of Tax Professionals guide.

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