Deduction Limits Based on Property Use

Property Partly Used for Rental Purposes

Using the property for both rental and personal uses

If you rent part of your property and use a separate part of it for personal purposes, you must divide certain expenses that apply to the entire property between the personal use and rental parts of the property as though you actually had two separate pieces of property. Only the expenses for the rental part may be deducted from rental income on Schedule E.

What can I deduct?

You can deduct as a rental expense the entire cost of expenses that belong only to the rental part of your property such as the cost of painting a room that you rent.

You can deduct a part of some expenses such as mortgage interest and property taxes, as a rental expense. The other part can be deducted on Schedule A if you itemize your deductions. You can deduct depreciation on the rental part of the property as well as on the furniture and equipment used for rental purposes. You can also deduct as a rental expense a part of other expenses that normally are nondeductible personal expenses, such as expenses for utilities or for painting the outside of your house.

What can't I deduct?

You cannot deduct the cost of the first phone line even if your tenants have unlimited use of it.

You can use any reasonable method to divide expenses between the rental and the personal use of the property. The most common method for dividing an expense is based on the square footage of your home.

Personal use of a vacation home or dwelling unit

Vacation homes are other dwelling units include houses, apartments, condominiums, mobile homes, boats, or similar property. A dwelling unit has basic living accommodations such as sleeping space, a toilet, and cooking facilities. A dwelling unit does not include property that is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Such property includes hotels, motels and similar establishments.