Can I Deduct Expenses on Rental Properties?

What, if any, are the tax benefits of owning rental property? Also, are there any penalties if we then move into it and use it as our main residence a few years down the road?


The rent you collect is income, and the interest on your mortgage plus other expenses of owning are deductible against that income. In addition, you can depreciation on the structure over a period of 27.5 years This means that 1/27.5 of the price you paid for the structure is deductible each year.

If depreciation contributes to a loss on the property, that loss is deductible on your tax return.

The exception: if your income is over $150,000, in which case the loss carries over until the death of the owner or sale of the property. (In the case of a sale, total losses on the property can be deducted for the tax year in which the sale took place. In the case of a death, the loss expires unused. )

If you move into the house and stay there at least two years, when you sell it, most of the gain won't be taxable. The only tax you'll owe on the sale will be tax on any depreciation you claimed on prior tax returns.

--Ginita Wall, C.P.A., C.F.P., Retire Rich Expert

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