Mortgage expenses on rental properties include several items that may be deductible for tax purposes. Schedule E, Supplemental Income and Loss, is the form used to report income and claim deductions for rental property held for investment purposes. According to the IRS, examples of rental properties include single or multiple dwelling houses, town houses, commercial buildings, mobile homes and self-storage units. A separate Schedule E must be used for each rental property, with the totals reported on only one form. Real estate professionals must report income and expenses from rental property on Schedule C, Profit or Loss from Business, if the property is held for sale to customers in the ordinary course of their real estate business.
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Report insurance expenses for rental property on line 9 of Schedule E. Mortgage insurance premiums paid directly to the lender should be included in box 4 of Form 1098, Mortgage Interest Statement.
Enter mortgage interest paid for rental property on line 12. Taxpayers should receive Form 1098, Mortgage Interest Statement, from their bank or financial institution. The amount of total interest paid by the borrower will be reported in box 1.
Report interest paid to lenders other than financial institutions, or to those recipients who do not file Form 1098, on line 13.
Enter the amount of real estate taxes paid on line 16. If mortgage payments for the property include real estate taxes, include only the amount the mortgage company actually paid in the tax year. If the property is sold during the tax year, enter the amount of real estate taxes reported in box 5 of the settlement statement, Form 1099-S.
Report net supplemental income or loss from Schedule E on line 17 of Form 1040, or on line 18 of Form 1040NR. Net losses may be limited.
Enter the amount of insurance paid for rental property on line 15. Insurance expenses should pertain only to rental property used in your business.
Enter any interest on line 16a that is reported to you on Form 1098 for rental property used in your business. If you did not receive a 1098 form, enter the interest on line 16b.
Report the amount of real estate taxes paid for rental property related to your business on line 23. If taxes are paid directly to a mortgage company, include only those taxes actually paid in the current tax year.
Report net profit or loss from Schedule C on Form 1040, line 12, or Form 1040NR, line 13. If a loss is reported on line 31 of Schedule C, you must go to line 32 and check one of the boxes regarding your investment risk. Only allowable losses can be transferred to the 1040.
Tips and warnings
- Seek the advice of a tax professional to ensure that all eligible mortgage expenses are claimed and that all rules are followed.
- Taxpayers must adhere to at-risk rules, passive activity rules and personal use rules regarding rental properties. Net losses from rental activities may be limited based on these rules.
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