Can I deduct expenses for my rental property?
sloppyjo asked:
We are looking at purchasing a second home in Florida, which we will rented out short term. What will we be able to deduct? Taxes, mortgage interest, furnishings, property management fees, HOA fees??
We are looking at purchasing a second home in Florida, which we will rented out short term. What will we be able to deduct? Taxes, mortgage interest, furnishings, property management fees, HOA fees??
I was told you cannot deduct those things IF your combined income is able $150,000. I live in Pennsylvania. Thanks for your help!
We would not be living in the home at all. We would just visit it once or twice a year to check on it.
Would I have to set up a business for the rental???
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All of those things are deductible on a rental property. You’ll need to complete a Schedule E. (these don’t go on a Schedule A, that’s where you personal residence stuff goes)
I think the person who told you about the $150,000 was referring to the Schedule A and if you’re subject to AMT.
I have rental property in PA and all those things are deductible. So are any utilities you pay and any expenses for upkeep and improvements
Whoever told you that is incorrect. Expenses of producing rental income are deductible against rental income, regardless of how much you earn. Such expenses are NOT deductible directly against your other income, and this may be what whoever told you this was talking about.
Rental income is reported on Schedule E. Deductible expenses also go on Schedule E.
Of the items you mentioned, furnishings are not a deductible expense. Furnishings that you buy are expected to last many years, and are considered capital improvements, as are major improvements/replacements such as new roof, new furnace, replacing a driveway, among others. Instead, they are depreciated over a set period of years as determined by IRS rules, and reported on a different form. Information for that depreciation expense then goes on Schedule E.
For example, if IRS rules say the expected life (and recovery period) of a new roof is 15 years, you would be able to deduct 1/15th of the cost each year for 15 years. You also depreciate the property itself, though over a longer time.
But, you say you are renting short term. This can get very complicated, and may have a huge impact on what you can and cannot deduct. For example, let’s say you intend to live in the for six months out of the year and rent it the other six. You then must prorate the expenses. half the actual property tax, half the HOA fees, half the interest expense, etc. And depreciation becomes very complicated and should be trusted to a qualified tax professional.
My best advice is to talk to an income tax specialist.If you decide to purchase it you will pay taxes on the income and will be able to deduct expenses on schedule E. You MUST keep very careful records and since you will be using it yourself as a second home you must keep track of the number of days you use it yourself and the number of days it is rented out. Then everything is on a percentage basis. Also,be sure to claim any depreciation allowed (Some people think this is too much monkey business so they don’t do it) because when you go to sell it the IRS will still act as if you claimed depreciation whether you did or not. The home will depreciate but the land does not so make sure you know the value of the land alone. I don’t know the laws in Pennsylvania but some states don’t always follow the IRS rules for depreciation etc. so you should find out the law there also. There is no state tax in Florida.
yes all those items are deductible for a rental prop