Question

while revewing last years tax return for new client you see renal income entered on the other income srction on form 1040 and deducation for rental expense on the other expensrs section of schdule A

Answer 1

If a taxpayer has any personal use of a dwelling that they rent, they must divide their expenses between rental use and personal use. They must divide expenses even if the dwelling doesn’t meet the definition of a residence. They may deduct only rental expenses on Schedule E (Form 1040). They may be able to deduct some of their personal expenses on Schedule A (Form 1040) if they itemize deductions.

Furthermore, the amount of rental expenses that a taxpayer can deduct may be limited if the dwelling is considered a residence.

Ordinary and necessary expenses. Taxpayers can deduct the ordinary and necessary expenses for managing, conserving and keeping their rental property. Ordinary expenses are common and generally accepted in the business, such as depreciation and operating expenses. Necessary expenses are appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

If the taxpayer includes expenses paid by a tenant, the fair market value of the property or services given by a tenant in their rental income, then normally they can deduct that same amount as a rental expense.