Have a Tax Question? Ask a Tax Expert
If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.
Where to report. Report your not-for-profit rental income on Form 1040 line 21. For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A if you itemize your deductions.
Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.
Closing costs with few exemptions are not deductible - but should be added to the basis of the property.
Part of closing cost related to real estate tax and mortgage interest - may be deducted as such.
If you paid points - as part of your closing cost - they are considered prepaid interest - and are deducted over the terms of your mortgage.
Let me know if you need any help.
I don't follow on the rental property.I rent this property to my adult son. On the rental property, can I deduct the interest on the mortgage and homeowner's insurance on Taxes You Paid and Interest You Paid on Schedule A. Do I even bother to fill out Schedule E if expenses (including mortgage interest and Homeowner's insurance) are going to be much greater that rental income. If I do need to fill it out, Rental income on Schedule E should be what I rent it for (to my son) or fair market rent (to a stranger)?
What are the type rental expenses that go on line 23 of Schedule A, mortgage interest and homeowner's expenses or other miscellaneous expenses related to renting. Can I deduct the condo dues I pay since the rental property is a condo?
Please answer each question separately and specifically. Thank you very much.
To report your rental income and expenses on the schedule E and be eligible for rental losses - that would be a rent at a fair market price - especially consider that you rent to a related person.
Non-for profit rental should not be reported on the schedule E and you are not eligible to use any rental losses resulted by non-for profit rental activity.
Generally same expenses that are deducted on the schedule E - would be reported on the schedule A for non-for profit rental excluding depreciation.
You should not depreciate a property that you rent not-for-profit.
At the same time - you may deduct mortgage interest as for a second home and real estate taxes - also on the schedule A but without 2% floor limitation.
But condo dues, home owner's insurance, repairs, utilities and other expenses should be deducted on the line 23.
On the rental property, can I deduct the interest on the mortgage and home owner's insurance on Taxes You Paid and Interest You Paid on Schedule A.
Yes - all are deductible expenses.
Do I even bother to fill out Schedule E if expenses (including mortgage interest and Home owner's insurance) are going to be much greater that rental income.
You do not use schedule E for not-for-profit rental.
If I do need to fill it out, Rental income on Schedule E should be what I rent it for (to my son) or fair market rent (to a stranger)?
To use schedule E - there should be for-profit rental at fair market value.
Allowing your son to pay less than fair market value is considered to be a gift.
What are the type rental expenses that go on line 23 of Schedule A, mortgage interest and home owner's expenses or other miscellaneous expenses related to renting. Can I deduct the condo dues I pay since the rental property is a condo?
Yes - all mentioned are reasonable rental expenses. The only difference with not-for-profit rental - you do not deduct depreciation.
You should not deduct same expenses twice...
Generally - as you rent not-for-profit to your close relative - you may treat the condo as a second home - and you may deduct real estate taxes and mortgage interest (you may deduct mortgage interest only on one second home!) on the schedule A - lines 6 and 10 without 2% limitation - http://www.irs.gov/pub/irs-pdf/f1040sab.pdf
If you have another second home for which you are deducting a mortgage interest - you will be able to claim a mortgage interest on line 23 - but you may not deduct same expenses twice.
To get over 2% limitation - you might need to add your job related expenses, tax preparation expenses, etc, but the amount of rental expenses you claim should not be more than your non-for-profit rental income.