Another states income from rental property

[thomasspink]

My wife and I are residents of VA, we have to file VA and NC state taxes since we own a home in NC. We rent that home out, for the entire year. It is rented out for less than what our Mortgage payment is. It should be considered a "loss" at that point correct? It is telling me in the end that I have a profit of $1,XXX. I don't understand how that is possible?

[HelenaC]

Principal repayment is not an expense therefore it is not a deduction.

[thomasspink]

Im sorry, but can you explain that a little bit for me. I don't think I am understanding this fully. I appreciate the help

[HelenaC]

The renter is paying down on your rental mortgage loan (principal). It is the same when you purchase a home for yourself. You are able to deduct the mortgage interest and property taxes (expenses) but you cannot deduct the principal that you pay each month with your mortgage payment.

[thomasspink]

Understand, thank you

[thomasspink]

I think

[HelenaC · Accepted solution]

Yes, that is very common. Your mortgage payment includes principal repayment. Principal repayment is not an expense therefore it is not a deduction. 

Deductible expenses include, but are not limited to:

• Cleaning and cleaning supplies
• Maintenance and related supplies
• Repairs
• Utilities
• Insurance
• Travel to and from the property
• Management fees
• Legal and professional fees
• Commissions
• Taxes and tax return preparation
• Lease cancellation costs
• Advertising
• Real estate taxes
• Mortgage interest
• Refinance fees and mortgage points are entered in the Assets/Depreciation section instead of the Expenses section. The IRS considers these "amortizable intangibles" which means they must be depreciated, not expensed.

Related Information:

• How do I handle capital improvements and depreciation for my rental?
• What is rental depreciation and how does it differ from an expense?
• What can I deduct when refinancing rental property?
• Where do I enter income and expenses from a rental property?