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If you are able to itemize, mortgage interest you pay on your home and a second home may be tax deductible on Schedule A.
Real estate taxes are deductible on Schedule A on properties you own as long as the taxes are based on the valuation of the property. There is no limitation to the number of properties you can own and deduct the taxes on unlike the mortgage interest deduction. If one of the homes is rented out and you are receiving fair market value for the property, you are to report this income on a Schedule E. You will also report the mortgage interest expense, the real estate taxes, insurance, and any other expenses you incur for this rental property that are ordinary and necessary such as repairs, utilities and such. You are also to depreciate the cost of the property less land over 27.5 years. If this answers your question, please click the accept button as this is the only way we get paid for the assistance we provide to you. If you need more clarification, please let me know. If I am not available at the time, I will be. I appreciate the opportunity to assist you and I look forward to your response.Stephanie
If I declare rthe income whichi is below the market value of the rental will I not have to pay tax on it? Also how would anyone know what income I have or have not received from the "rental"?
You as a taxpayer are to report all of your income. If you are audited, they will find it and you will have pay not only the tax but penalties and interest as well.
Is the person renting the property a relative?
no. I am on disability and am worried that I will owe money if I claim the rent on this homw. I want to sell but as with most people am upside down on the mortgage.
According to the IRS, any day rented to anyone at less than fair market value is a personal-use day. What this means is you are required to report all of your income from the rent received but you can not claim the deductions. You could report the mortgage interest on Schedule A as a second home because it is deemed personal and the rules have no requirements on who is living in the second home and you could report the taxes on Schedule A as well.
The key is the rental income is reportable no matter what.
Okay ..bad news but understandable. thanks for your help.