Sch E property tax question - conversion to rental

[sockfight-1]

I converted a home I own from a residence to a rental halfway through 2025. My property tax bill for the year is payable in either December or January. I understand that if I pay it in December, I would deal with it on my 2025 return and apportion the bill based on rental days vs. residence days, with the rental portion being deductible on Sch E and the remainder being deductible on Sch A, if I itemize. However, if I pay the property tax bill in 2026, I would deal with it on my 2026 return… would I still be expected to allocate between residence days and rental days, or would I get to claim 100% of it as a Sch E deduction in 2026 (Assuming the home is a rental for all of 2026)?

[M-MTax]

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@sockfight-1 wrote:

..would I get to claim 100% of it as a Sch E deduction in 2026....?

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Yes, assuming you're a cash basis taxpayer.

[taxmodern]

Even if you pay it in 2026, you still couldn't claim all of it as a rental expense.  You could still only claim the portion of the property taxes that applied to the time it was a rental.  But that portion would be deductible as a Schedule E rental expense on your 2026 tax return.  The other non-rental portion of your property taxes would still be eligible for listing as an itemized expense as your personal property taxes. 

[M-MTax]

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@taxmodern wrote:

Even if you pay it in 2026, you still couldn't claim all of it as a rental expense.  

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I don't believe that is accurate. @sockfight-1 wrote, " (Assuming the home is a rental for all of 2026)" and, if that's the case, then 100% of the expenses paid in 2026 are rental expenses and can be deducted (subject to the passive loss rules).

[taxmodern]

I should first say I'm assuming that the end of the year property tax bill is "in arrears" and applies to the previous tax period, rather than pre-paying for the upcoming property tax period.  That's how it works in most of the US, but not everywhere.  If they live in an area where property taxes are billed in advance for the upcoming property tax period, then it could be a rental expense.

Cash basis accounting means that expenses are attributed to the tax year that you pay the expense, that is true.  But before we can even consider that, it still always has to be a business expense.  Property taxes accrued during the time a property isn't a rental wouldn't be a business expense for the rental.  Changing the property from personal use to a rental doesn't change the character of past expenses, regardless of when the bill is paid. 

Tax law references include IRC § 262(a) which prohibits deducting personal expenses, and IRC § 212 which defined what expenses are eligible to be deducted as business expenses.  

[M-MTax]

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@taxmodern wrote:

.....I'm assuming that the end of the year property tax bill is "in arrears" and applies to the previous tax period, rather than pre-paying for the upcoming property tax period....

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Yeah, that makes no difference. If the property is being used as rental property in the year the expense is paid (for a cash-basis taxpayer), then the expense is deductible, regardless. 

This happens to work the other way around as well. For example, if property is used as a rental for the entire 2025 tax year but converted to personal use beginning January 1, 2026, then an expense billed in 2025 but paid in 2026 is NOT deductible as a rental expense on a 2026 tax return (cash-basis taxpayer).