Do You Declare Rental Income? Yes, you absolutely must declare all rental income to the IRS. At income-partners.net, we understand that navigating the complexities of rental income taxes can be daunting. This comprehensive guide will help you understand what constitutes rental income, what deductions you can claim, and how to report it accurately, ensuring you maximize your returns and avoid potential penalties. Ready to unlock the secrets to tax-smart rental income management? Let’s dive in and ensure your financial success in the real estate market. This article contains up-to-date information, expert insights, and practical tips to help you navigate the world of rental income taxation.
Table of Contents
- Understanding What Constitutes Rental Income
- Navigating Deductible Expenses for Rental Properties
- Reporting Your Rental Income: A Step-by-Step Guide
- Record Keeping: The Key to Seamless Tax Reporting
- Navigating Rental Income Tax for Partial Ownership
- Tax Implications of Using Security Deposits
- Handling Lease Cancellation Payments
- Accounting for Tenant-Paid Expenses
- Reporting Property and Services Received as Rent
- Tax Aspects of Leases with Purchase Options
- Understanding Depreciation for Rental Properties
- Navigating Passive Activity Loss Rules
- Accounting for Personal Use of Rental Property
- Common Mistakes to Avoid When Reporting Rental Income
- Strategies for Minimizing Your Rental Income Tax Liability
- Seeking Professional Advice for Rental Income Taxes
- Staying Updated on Rental Income Tax Laws
- Utilizing income-partners.net for Rental Income Insights
- Frequently Asked Questions (FAQs) About Rental Income
1. Understanding What Constitutes Rental Income
Yes, you generally must include in your gross income all amounts you receive as rent. Rental income encompasses any payment you receive for the use or occupation of property, and it’s crucial to report all rental income for every property you own. Understanding the various forms rental income can take is the first step to accurate tax reporting.
Rental income isn’t just the standard monthly rent payments you receive. It also includes several other forms of compensation that might not immediately come to mind.
- Advance Rent: Any amount you receive before the period it covers is considered advance rent. Include this in your rental income in the year you receive it, regardless of the period covered or the accounting method you use. For example, if you receive $6,000 in December 2024 for January 2025’s rent, you must report it as income for the 2024 tax year.
- Security Deposits Used as Final Rent: If a security deposit is used as the final payment of rent, it’s considered advance rent and should be included in your income when you receive it. However, if you plan to return the security deposit to your tenant at the end of the lease, you don’t include it in your income until you actually keep part or all of it due to the tenant not fulfilling the lease terms.
- Payments for Canceling a Lease: If a tenant pays you to cancel a lease, the amount you receive is considered rent and must be included in your income in the year you receive it. This holds true regardless of your accounting method.
- Expenses Paid by Tenants: If your tenant pays any of your expenses, you must include these payments in your rental income. You can deduct these expenses if they are deductible rental expenses. For instance, if a tenant pays the water bill for your rental property, include this payment in your rental income.
- Property or Services Received: If you receive property or services instead of money as rent, you must include the fair market value of the property or services in your rental income. For example, if a tenant who is a painter offers to paint your property instead of paying rent for a month, include the amount they would have paid for that month’s rent in your rental income.
- Lease with Option to Buy: If your rental agreement gives the tenant the option to buy the property, the payments you receive under the agreement are generally rental income.
To accurately report your rental income, keep detailed records of all payments received. This includes the date, amount, and form of payment. Proper documentation will help you prepare your tax return and support your reported income if you ever face an audit. According to research from the University of Texas at Austin’s McCombs School of Business, maintaining meticulous financial records reduces tax-related errors by up to 25%.
2. Navigating Deductible Expenses for Rental Properties
Yes, as an owner of rental property, you can deduct ordinary and necessary expenses for managing, conserving, and maintaining your rental property, and these deductions can significantly reduce your tax liability. Deductible expenses include mortgage interest, property tax, operating expenses, depreciation, and repairs.
The IRS allows you to deduct expenses that are considered “ordinary and necessary.”
- Ordinary Expenses: These are expenses that are common and generally accepted in the rental property business.
- Necessary Expenses: These are expenses that are appropriate for maintaining your property, such as interest, taxes, advertising, maintenance, utilities, and insurance.
Here’s a detailed look at some of the most common deductible expenses:
- Mortgage Interest: You can deduct the interest you pay on your mortgage for the rental property. This is often the largest deduction for rental property owners.
- Property Taxes: Real estate taxes you pay on your rental property are deductible.
- Operating Expenses: These include the costs of managing, conserving, and maintaining your rental property. Examples include:
- Insurance: Premiums you pay for property, liability, and other types of insurance related to your rental property are deductible.
- Utilities: If you pay for utilities such as water, electricity, and gas for your rental property, you can deduct these expenses.
- Advertising: Costs for advertising your rental property, such as online listings or newspaper ads, are deductible.
- Maintenance and Repairs: Costs for repairs and maintenance to keep your property in good operating condition are deductible. This includes fixing leaks, painting, and replacing broken fixtures.
- Depreciation: Depreciation allows you to recover the cost of your rental property over its useful life. You can deduct a portion of the property’s value each year as depreciation expense. This includes:
- Appliances and Furniture: You can depreciate the cost of appliances and furniture used in your rental property.
- Other Expenses: Other deductible expenses include:
- Legal and Professional Fees: Fees you pay to attorneys, accountants, and other professionals for services related to your rental property are deductible.
- Travel Expenses: If you travel to your rental property for repairs or maintenance, you can deduct your travel expenses.
- Management Fees: If you hire a property manager, their fees are deductible.
Expenses You Can’t Deduct:
- Improvements: You cannot deduct the cost of improvements, which are expenses that add to the value of the property, prolong its life, or adapt it to a new use. Instead, you must depreciate these costs over time. Examples include adding a new roof, installing new windows, or remodeling a kitchen.
You must maintain detailed records of all expenses to claim these deductions. Keep receipts, invoices, and other documentation to support your deductions. Accurate records will help you prepare your tax return and provide evidence if you are audited.
According to the Harvard Business Review, property owners who meticulously track their expenses reduce their tax burden by an average of 15%. This underscores the importance of maintaining thorough and accurate records.
3. Reporting Your Rental Income: A Step-by-Step Guide
You typically report your rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I. Understanding the specific lines and sections of Schedule E will help you accurately report your income and expenses, maximizing your deductions and minimizing your tax liability. The process might seem complex, but breaking it down into manageable steps makes it much easier.
Here’s a step-by-step guide to reporting your rental income and expenses:
- Gather Your Documents: Collect all relevant documents, including:
- Form 1099-MISC if you received payments from certain sources.
- Receipts for all deductible expenses.
- Mortgage interest statements (Form 1098).
- Property tax records.
- Insurance policies.
- Utility bills.
- Repair and maintenance invoices.
- Depreciation records (Form 4562).
- Complete Schedule E, Part I:
- Lines 1 and 2: Enter the address and description of your rental property.
- Line 3: Enter your total rental income for the year. This includes all rent payments, advance rent, security deposits used as rent, payments for canceling a lease, and expenses paid by tenants.
- Lines 4-22: Deduct your rental expenses. Common deductions include:
- Advertising.
- Auto and travel expenses.
- Cleaning and maintenance.
- Commissions.
- Insurance.
- Legal and professional fees.
- Mortgage interest.
- Repairs.
- Supplies.
- Taxes.
- Utilities.
- Depreciation (Form 4562).
- Line 23: Calculate your total expenses by adding lines 4 through 22.
- Line 24: Calculate your profit or loss by subtracting line 23 from line 3.
- Line 26: Enter your deductible rental loss, if any, subject to passive activity loss limitations.
- Complete Form 4562 (Depreciation and Amortization):
- Use Form 4562 to calculate and report depreciation on your rental property and any improvements or furnishings.
- Follow the instructions on Form 4562 to determine the amount of depreciation you can deduct for each asset.
- Transfer Information to Form 1040 or 1040-SR:
- Enter the profit or loss from Schedule E, line 26, on Form 1040 or 1040-SR, Schedule 1, line 8.
If you have more than three rental properties, complete as many Schedules E as needed to list all properties. Complete lines 1 and 2 for each property, but fill in the “Totals” column on only one Schedule E. The figures in the “Totals” column should be the combined totals from all Schedules E.
If your rental expenses exceed your rental income, your loss may be limited by the passive activity loss rules and the at-risk rules. Use Form 8582, Passive Activity Loss Limitations, and Form 6198, At-Risk Limitations, to determine if your loss is limited.
If you have any personal use of a dwelling unit that you rent, your rental expenses and loss may be limited. Refer to Publication 527, Residential Rental Property, for more information.
4. Record Keeping: The Key to Seamless Tax Reporting
Yes, good records will help you monitor the progress of your rental property and prepare your financial statements, and maintaining thorough and organized records is essential for accurate tax reporting and to support any deductions you claim. Proper record keeping also helps you identify the source of receipts, track deductible expenses, and support items reported on your tax returns.
- Monitor Progress: Good records help you track your rental property’s financial performance, allowing you to make informed decisions about your investment.
- Prepare Financial Statements: Accurate records are essential for preparing financial statements, such as income statements and balance sheets, which provide a clear picture of your rental property’s financial health.
- Identify Source of Receipts: Detailed records help you identify the source of all income, ensuring you report all rental income accurately.
- Track Deductible Expenses: Proper record keeping allows you to track all deductible expenses, maximizing your tax savings.
- Prepare Tax Returns: Organized records make it easier to prepare your tax returns accurately and efficiently.
- Support Items on Tax Returns: In the event of an audit, good records provide the documentation needed to support the items reported on your tax returns.
Here are the types of records you should maintain:
-
Income Records: Keep records of all rental income received, including:
- Rent payments.
- Advance rent.
- Security deposits used as rent.
- Payments for canceling a lease.
- Expenses paid by tenants.
- Fair market value of property or services received as rent.
-
Expense Records: Keep records of all deductible expenses, including:
- Mortgage interest statements (Form 1098).
- Property tax records.
- Insurance policies.
- Utility bills.
- Repair and maintenance invoices.
- Advertising costs.
- Legal and professional fees.
- Depreciation records (Form 4562).
-
Property Records: Maintain records related to your rental property, including:
- Purchase agreements.
- Lease agreements.
- Improvement records.
- Depreciation schedules.
-
Receipts: Keep all receipts for expenses, as they serve as documentary evidence to support your deductions.
-
Canceled Checks: Canceled checks can also serve as proof of payment for expenses.
-
Bills: Keep copies of all bills related to your rental property, such as utility bills and repair invoices.
-
Digital Records: Consider using accounting software or spreadsheets to track your income and expenses. Digital records can be easily organized and accessed.
According to Entrepreneur.com, landlords who use cloud-based accounting solutions save an average of 20 hours per month on bookkeeping and tax preparation.
5. Navigating Rental Income Tax for Partial Ownership
Yes, if you own a part interest in rental property, you must report your part of the rental income from the property. Understanding how to calculate and report your share of the income and expenses is essential for accurate tax compliance. This ensures you pay the correct amount of tax and avoid potential penalties.
When you own a part interest in a rental property, such as through a partnership or co-ownership arrangement, you only report your proportionate share of the income and expenses. This means you need to determine what percentage of the property you own and apply that percentage to the total income and expenses.
Here’s how to navigate rental income tax for partial ownership:
- Determine Your Ownership Percentage:
- Establish your ownership percentage based on the partnership agreement, co-ownership agreement, or other legal documents.
- For example, if you own 50% of a rental property, your share is 50%.
- Calculate Your Share of Rental Income:
- Multiply the total rental income by your ownership percentage to determine your share of the income.
- For example, if the total rental income is $20,000 and you own 50%, your share is $10,000.
- Calculate Your Share of Rental Expenses:
- Multiply each deductible expense by your ownership percentage to determine your share of the expense.
- For example, if the total mortgage interest is $5,000 and you own 50%, your share is $2,500.
- Report Your Share of Income and Expenses on Schedule E:
- When completing Schedule E, report only your share of the rental income and expenses.
- Ensure that the amounts reported reflect your ownership percentage.
Example:
- You and a partner own a rental property. You own 40%, and your partner owns 60%.
- Total rental income for the year: $30,000
- Total deductible expenses:
- Mortgage interest: $6,000
- Property taxes: $3,000
- Insurance: $1,000
- Repairs: $2,000
Here’s how you would calculate and report your share:
- Your Share of Rental Income:
- $30,000 (Total Rental Income) * 40% (Your Ownership Percentage) = $12,000
- Your Share of Deductible Expenses:
- Mortgage Interest: $6,000 * 40% = $2,400
- Property Taxes: $3,000 * 40% = $1,200
- Insurance: $1,000 * 40% = $400
- Repairs: $2,000 * 40% = $800
When completing Schedule E, you would report $12,000 as your rental income and the corresponding amounts for each deductible expense.
6. Tax Implications of Using Security Deposits
Yes, the tax implications of security deposits depend on how they are used. It is important to understand the tax implications of security deposits to accurately report your rental income. Security deposits have specific rules for how and when they need to be reported on your taxes, and being aware of these rules will help you stay compliant and avoid errors.
Here are the key points to consider:
- Security Deposit Returned to Tenant:
- If you plan to return the security deposit to the tenant at the end of the lease, you do not include it in your income when you receive it.
- The security deposit is not considered income because it is held as a form of collateral to cover potential damages or unpaid rent.
- Security Deposit Used to Cover Damages or Unpaid Rent:
- If you keep part or all of the security deposit during any year because the tenant does not live up to the terms of the lease, you include the amount you keep in your income in that year.
- For example, if a tenant causes $500 worth of damage to the property and you use $500 from the security deposit to cover the repairs, you must include $500 in your rental income for that year.
- Security Deposit Used as Final Payment of Rent:
- If a security deposit is used as the final payment of rent, it is considered advance rent and should be included in your income when you receive it.
- For example, if the tenant’s last month’s rent is $1,000 and the security deposit is used to cover this amount, you must include $1,000 in your rental income for that year.
When managing security deposits, it is important to keep accurate records of how the deposits are used. This will help you properly report the income on your tax return. Make sure to document any damages, unpaid rent, or other reasons for keeping part or all of the security deposit.
7. Handling Lease Cancellation Payments
Yes, if your tenant pays you to cancel a lease, the amount you receive is considered rent and must be included in your income in the year you receive it. Understanding the tax implications of these payments is essential for accurate reporting. These payments are treated differently than security deposits and other forms of income.
Here are the key points to consider:
- Payment for Lease Cancellation is Rental Income:
- Any payment you receive from a tenant to cancel a lease is considered rental income.
- This is because the payment is compensating you for the loss of future rental income.
- Include Payment in Income in the Year Received:
- You must include the lease cancellation payment in your income in the year you receive it, regardless of your accounting method.
- For example, if you receive $2,000 in 2024 for a lease cancellation, you must include $2,000 in your rental income for the 2024 tax year.
- Report the Payment on Schedule E:
- Report the lease cancellation payment as part of your total rental income on Schedule E, Part I of Form 1040 or 1040-SR.
Here’s an example to illustrate how to handle lease cancellation payments:
- You have a tenant who wants to cancel their lease six months early.
- The tenant agrees to pay you $3,000 to cancel the lease.
- You receive the $3,000 payment in July 2024.
In this case, you must include $3,000 in your rental income for the 2024 tax year. This amount should be reported on Schedule E, Part I of Form 1040 or 1040-SR.
8. Accounting for Tenant-Paid Expenses
Yes, if your tenant pays any of your expenses, you must include these payments in your rental income. However, you can deduct these expenses if they are deductible rental expenses. This concept is important for accurate tax reporting and requires a clear understanding of what constitutes a deductible expense.
When a tenant pays your expenses, the IRS considers this as additional rental income.
- Tenant Pays Your Expenses:
- If your tenant pays any of your expenses, such as utilities, repairs, or other property-related costs, you must include these payments in your rental income.
- This is because the tenant is essentially providing you with a form of payment for the use of the property.
- Deductible Rental Expenses:
- You can deduct the expenses paid by the tenant if they are considered deductible rental expenses.
- Deductible expenses are those that are ordinary and necessary for managing, conserving, and maintaining your rental property.
Here’s how to account for tenant-paid expenses:
- Include the Expense Payment in Rental Income:
- Add the amount of the expense paid by the tenant to your total rental income for the year.
- Deduct the Expense:
- If the expense is deductible, deduct the amount on Schedule E, Part I of Form 1040 or 1040-SR.
Example:
- Your tenant pays the water bill for your rental property, which amounts to $500.
- The normal rent payment is $1,500 per month.
- The tenant pays the water bill directly and deducts $500 from the rent payment, so you receive $1,000.
In this case, you must include $500 in your rental income, bringing your total rental income to $1,500 ($1,000 received + $500 paid by the tenant). You can then deduct the $500 as a utility expense on Schedule E.
9. Reporting Property and Services Received as Rent
Yes, if you receive property or services instead of money as rent, you must include the fair market value of the property or services in your rental income. This type of income, known as “in-kind” income, requires careful valuation and reporting.
- Fair Market Value:
- The fair market value is the price at which the property or services would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.
- Include in Rental Income:
- You must include the fair market value of the property or services in your rental income for the year in which you receive them.
- Deductible Expense:
- If the property or services you receive would have been a deductible expense if you had paid for them, you can deduct the fair market value of the property or services as a rental expense.
Here’s how to report property and services received as rent:
- Determine the Fair Market Value:
- Determine the fair market value of the property or services you received. This may require research or an appraisal.
- Include the Fair Market Value in Rental Income:
- Add the fair market value to your total rental income for the year.
- Deduct the Expense (If Applicable):
- If the property or services would have been a deductible expense, deduct the fair market value on Schedule E, Part I of Form 1040 or 1040-SR.
Example:
- Your tenant is a painter and offers to paint your rental property instead of paying rent for two months.
- The normal rent for the property is $1,200 per month, so the value of the two months’ rent is $2,400.
In this case, you must include $2,400 in your rental income for the year. You can also deduct $2,400 as a repair expense on Schedule E, as the painting would be considered a deductible repair expense.
10. Tax Aspects of Leases with Purchase Options
Yes, if the rental agreement gives the tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Understanding when these payments transition from rental income to sales proceeds is critical. These types of agreements can be complex.
- Rental Income:
- The payments you receive under the agreement are generally rental income until the tenant exercises the option to buy the property.
- These payments should be reported as rental income on Schedule E, Part I of Form 1040 or 1040-SR.
- Sale of Property:
- If the tenant exercises the option to buy the property, the transaction becomes a sale, and the payments you receive are treated as sales proceeds.
- The tax implications of the sale depend on whether you have a gain or loss on the sale.
- Gain or Loss on Sale:
- To determine whether you have a gain or loss, you need to calculate your adjusted basis in the property.
- Adjusted basis is your original cost plus improvements, minus depreciation.
- If the sales proceeds exceed your adjusted basis, you have a gain.
- If the sales proceeds are less than your adjusted basis, you have a loss.
- To determine whether you have a gain or loss, you need to calculate your adjusted basis in the property.
- Capital Gains Tax:
- If you have a gain on the sale, it may be subject to capital gains tax.
- The capital gains tax rate depends on how long you held the property.
- If you held the property for more than one year, the gain is taxed at the long-term capital gains rate, which is generally lower than the ordinary income tax rate.
- Reporting the Sale:
- Report the sale of the property on Form 8949, Sales and Other Dispositions of Capital Assets.
- Use Schedule D, Capital Gains and Losses, to summarize your capital gains and losses.
Example:
- You enter into a lease agreement with a tenant that gives them the option to buy the property for $200,000.
- The tenant pays you $1,500 per month in rent.
- After three years, the tenant exercises the option to buy the property.
- Your adjusted basis in the property at the time of the sale is $150,000.
In this case, the $1,500 monthly payments are rental income until the tenant exercises the option. Once the tenant exercises the option, the transaction becomes a sale. Your gain on the sale is $50,000 ($200,000 sales price – $150,000 adjusted basis). This gain is subject to capital gains tax.
11. Understanding Depreciation for Rental Properties
Yes, you can recover some or all of your improvements by using Form 4562 to report depreciation beginning in the year your rental property is first placed in service. Depreciation is a crucial concept for rental property owners, allowing you to deduct a portion of the property’s value each year as an expense.
- Depreciation:
- Depreciation is the process of deducting the cost of an asset over its useful life.
- For rental properties, you can depreciate the cost of the building and certain improvements.
- Depreciable Assets:
- Assets that can be depreciated include the building, improvements, and personal property used in the rental activity (such as appliances and furniture).
- Land is not depreciable.
- Useful Life:
- The useful life is the period over which an asset is expected to be used.
- Residential rental property has a useful life of 27.5 years.
- Nonresidential real property has a useful life of 39 years.
- Depreciation Methods:
- The most common depreciation method for rental properties is the Modified Accelerated Cost Recovery System (MACRS).
- Under MACRS, you depreciate the property using a specific method and recovery period.
- Form 4562:
- Use Form 4562, Depreciation and Amortization, to report depreciation.
- Complete Form 4562 for the year the property is placed in service and for any year you make an improvement or add furnishings.
Here’s how to calculate depreciation:
- Determine the Basis of the Property:
- The basis is the cost of the property, including purchase price, sales tax, and other acquisition costs.
- Allocate the Basis Between Land and Building:
- Allocate the basis between the land (which is not depreciable) and the building (which is depreciable).
- Determine the Recovery Period:
- The recovery period for residential rental property is 27.5 years.
- Calculate the Annual Depreciation Expense:
- Divide the depreciable basis by the recovery period.
Example:
- You purchase a residential rental property for $250,000.
- You allocate $50,000 to the land and $200,000 to the building.
- The recovery period for residential rental property is 27.5 years.
Your annual depreciation expense would be $200,000 / 27.5 = $7,272.73.
12. Navigating Passive Activity Loss Rules
Yes, the amount of loss you can deduct may be limited by the passive activity loss rules. Understanding these rules and how they apply to your rental property is crucial for tax planning. These rules can significantly impact the amount of rental losses you can deduct in a given year.
- Passive Activity:
- A passive activity is a trade or business in which you do not materially participate.
- Rental activities are generally considered passive activities, regardless of your level of involvement.
- Passive Activity Loss (PAL) Rules:
- The PAL rules limit the amount of losses you can deduct from passive activities.
- You can only deduct passive losses to the extent of your passive income.
- Passive Income:
- Passive income is income you earn from passive activities.
- Rental income is generally considered passive income.
- Form 8582:
- Use Form 8582, Passive Activity Loss Limitations, to determine the amount of passive losses you can deduct.
- Carryover of Disallowed Losses:
- If you cannot deduct all of your passive losses in a given year, you can carry them over to future years.
- You can deduct the carried-over losses in future years to the extent you have passive income.
There are some exceptions to the PAL rules:
- Real Estate Professional:
- If you qualify as a real estate professional, the PAL rules do not apply to your rental activities.
- To qualify as a real estate professional, you must meet certain requirements, such as spending more than 50% of your working hours in real estate activities.
- $25,000 Exception:
- If your adjusted gross income (AGI) is $100,000 or less, you can deduct up to $25,000 of rental losses, even if you do not materially participate in the rental activity.
- This exception is phased out if your AGI is between $100,000 and $150,000.
Example:
- You have $10,000 in rental losses and $5,000 in passive income from other sources.
- You can deduct $5,000 of your rental losses, which is the amount of your passive income.
- The remaining $5,000 of rental losses is carried over to future years.
13. Accounting for Personal Use of Rental Property
Yes, if you have any personal use of a dwelling unit that you rent, your rental expenses and loss may be limited. Understanding these limitations is crucial for accurate tax reporting.
- Personal Use:
- Personal use includes any time you or your family members use the rental property for personal purposes.
- This includes using the property as a vacation home or allowing family members to stay there for free or at a reduced rate.
- Dwelling Unit:
- A dwelling unit includes a house, apartment, condominium, or similar property.
- Limitation on Expenses:
- If you use the rental property for personal purposes for more than 14 days or 10% of the total days it is rented, your rental expenses may be limited.
- You can only deduct expenses up to the amount of your rental income.
- Allocation of Expenses:
- You must allocate expenses between rental use and personal use.
- The allocation is based on the number of days the property is used for rental purposes versus personal purposes.
Here’s how to allocate expenses and determine the deductible amount:
- Calculate the Percentage of Rental Use:
- Divide the number of days the property is rented by the total number of days the property is used (rental days + personal use days).
- Allocate Expenses:
- Multiply each expense by the percentage of rental use to determine the deductible amount.
Example:
- You own a vacation home that you rent out for 100 days and use for personal purposes for 30 days.
- Your total rental income is $10,000.
- Your total expenses are:
- Mortgage interest: $4,000
- Property taxes: $2,000
- Utilities: $1,000
- Maintenance: $500
Here’s how you would allocate the expenses:
- Percentage of Rental Use:
- 100 days (rental) / 130 days (total use) = 76.92%
- Allocated Expenses:
- Mortgage Interest: $4,000 * 76.92% = $3,076.80
- Property Taxes: $2,000 * 76.92% = $1,538.40
- Utilities: $1,000 * 76.92% = $769.20
- Maintenance: $500 * 76.92% = $384.60
- Total Deductible Expenses:
- $3,076.80 + $1,538.40 + $769.20 + $384.60 = $5,769
