No, when you rent below fair market value (FMV), then you are limited to any regular rental expenses up to the amount of rent.
Mortgage interest and real estate taxes are fully deductible as an itemized deduction (mortgage interest limited to the first $750,000 mortgage and taxes are limited to $10,000 overall) and there is no consideration that it is being paid for a 'not for profit' rental property. It is deductible as though this was a second residence for you.
- Real Estate Taxes: Deductible taxes are reported on Form 1040, Schedule A in the Taxes You Paid section. The aggregate deduction for state or local income (or sales taxes in lieu of income taxes) and state or local property taxes is limited to $10,000 ($5,000 if Married Filing Separately) per return.
- Mortgage Interest: A taxpayer may be able to deduct interest on a main home and a second home. A home can be a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat that has sleeping, cooking, and toilet facilities.
Not Rented for Profit (IRS Publication 527)
If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.
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