If you have rental properties, you're entitled to a number of tax deductions related to running your rental property. If you've taken out a mortgage, you can take even more deductions. Mortgage interest and private mortgage insurance payments are deductible immediately, but other costs related to getting the mortgage must be spread over the life of the mortgage. These include abstract fees, legal fees and recording costs. To deduct the costs, you must use Form 1040 for your tax return and attach Schedule E.
Report the amount of mortgage interest paid on your rental property on line 12 of IRS Schedule E, assuming that the mortgage is from a financial institution like a bank and you received a Form 1098 documenting the payment. If that's not the case, report the interest on line 13 of Schedule E instead.
Report the deductible portion of your mortgage expenses, such as closing costs and legal fees, as depreciation expenses on line 18 of Schedule E. These costs must be deducted over the life of the mortgage rather than in the year you pay them.
Report the mortgage insurance premiums paid, if any, on line 9 of Schedule E. You can't deduct any PMI prepaid for future years.
Add the mortgage expenses to your other rental expenses and report the total on line 20 of Schedule E. Other expenses include managements fees, supplies, advertising and repairs.
Items you will need
- IRS Schedule E
- IRS Form 1040
- Internal Revenue Service: Publication 535 -- Business Expenses
- Internal Revenue Service: Schedule E Instructions
- National Technical Information Service: Sale or Trade of Business, Depreciation, Rentals - Rental Expenses versus Passive Activity Losses (PALs)
- Internal Revenue Service: Publication 527 -- Residential Rental Property
- Hemera Technologies/AbleStock.com/Getty Images
- What Is Reported to IRS for Mortgage Refinance?
- How to Make an Extra Mortgage Payment for a Tax Deduction
- How to Calculate Mortgage Interest Tax Deductions
- How do I File Income Tax Form 1098: Mortgage Interest Statement?
- Can You Claim Rental Mortgage Interest as an Itemized Deduction?
- Is Mortgage Interest an Above-the-Line Deduction?
- Tax Deductions for Renting Out a Room in Your House
- Can I File Taxes Without Mortgage Papers?