@cabrerag9505 wrote:
Is the mortgage at the time of renting considered an expense?
If you haven't done rental taxes before or aren't sure what we are talking about, you need to see a professional pretty soon.
One of your rental expenses is depreciation -- that's wear and tear on the house. You deduct the value of the house gradually over 27.5 years (the recovery period for rental property under tax law). So if the house cost you $100,000, you would get a deduction of $3636 per year that represents the value of the house you are using up by renting it.
If you borrowed money to buy the house, you can deduct the interest you paid, but not the principal. The principal you pay as part of the mortgage represents the value of the home, which you are already recovering through depreciation. The interest portion of the payment is a rental expense, as long as the interest is paying for the rental property. (If you took out an HELOC and use the proceeds for something else, the interest does not count as a rental expense.)
Other rental expenses are utilities, insurance and repairs and maintenance. Improvements (such as, you rent a home for 10 years and halfway through you have to replace the roof or hot water heater) are added as additional assets on the property, and the cost is either deducted immediately or spread out through depreciation, depending on the type of asset and the cost.
When you sell, you recapture the depreciation you took or could have taken. You must recapture and pay tax on past depreciation even if you forgot to take it. That can be corrected by an accountant.
If any of this is strange to you, see an accountant or qualified tax preparer now, while it's not their busy season, so they can help you gather needed information and documents and start working on your return.
