If you own a condominium and rent it out, your rental expenses can also include the dues you pay to the management association or company. Assessments for improvements to the condominium are not deductible as expenses, but you may be able to recover the cost through depreciation.
Cooperative Apartments
Rental expenses in the case of a cooperative apartment include all the maintenance fees you pay to the cooperative housing corporation. But you cannot deduct amounts assessed for capital assets or improvements, or other amounts charged to the corporation’s capital account. The amount you can deduct for interest and taxes is the amount the corporation allocated to you. If this amount is not reflected, you can take your proportionate share of the total interest and taxes based on your percentage ownership of the total shares of stock.
Property Not Rented for Profit
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, with no loss carryover to the next year.
Not-for-profit rental income is reported as Other Income on Form 1040. Related expenses such as mortgage interest and property taxes are taken as itemized deductions.
Property Changed to Rental Use
As mentioned above, if you change your home (or part of it) or other property from person use to rental use during the year, you have to divide your expenses. You can use any reasonable method to allocate expenses between personal use and rental use. Two common methods are to allocate based on the number of rooms in your home, or the square footage of the rental and personal portions. Some expenses, such as water, that depend on personal use may be divided based on the number of persons (tenants and owners) occupying the property.
You can deduct expenses related to rental use, including an allocable portion of home mortgage interest and property taxes, as rental expenses on Schedule E, Supplemental Income and Loss. The personal portion of mortgage interest and property taxes would be deductible as itemized deductions on Schedule A. You can also deduct on Schedule E the allocable portion of expenses such as utilities and the cost of painting your house. Expenses that are specifically for the rental part of the property, such as painting or repairs, can be taken as rent expenses on Schedule E. You cannot deduct the cost of a first telephone line in your residence, but if you install a second line just for the tenant’s use, the cost is a fully deductible rental expense. You can start to claim depreciation on the rental property starting from the date it was converted to rental use.