topic Sch E property tax question - conversion to rental in Investors & landlords

Sch E property tax question - conversion to rental

sockfight-1 — Wed, 22 Oct 2025 21:25:49 GMT

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)?

Re: Sch E property tax question - conversion to rental

M-MTax — Wed, 22 Oct 2025 23:22:44 GMT

@sockfight-1 wrote:
..would I get to claim 100% of it as a Sch E deduction in 2026....?

Yes, assuming you're a cash basis taxpayer.

Re: Sch E property tax question - conversion to rental

taxmodern — Sun, 04 Jan 2026 06:17:31 GMT

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.

Re: Sch E property tax question - conversion to rental

M-MTax — Sun, 04 Jan 2026 15:26:21 GMT

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

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).

Re: Sch E property tax question - conversion to rental

taxmodern — Sun, 04 Jan 2026 16:56:37 GMT

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.

Re: Sch E property tax question - conversion to rental

M-MTax — Sun, 04 Jan 2026 17:15:19 GMT

@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....

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).

Re: Sch E property tax question - conversion to rental

taxmodern — Sat, 07 Feb 2026 21:45:07 GMT

You're just focusing on cash basis accounting rules, but that doesn't override tax law that says personal expenses for personal use of a property are never deductible as a business expense. Cash basis accounting tells you which tax year you can deduct an expense, but it never makes personal expenses magically become a deductible business expense. As I cited, IRC § 262(a) prohibits deducting personal expenses ("no deduction shall be allowed for personal, living, or family expenses"), and IRC § 212 which defined what expenses are eligible to be deducted as business expenses. If you have any relevant tax law or authoritative source references for what you're claiming, please cite it.

Re: Sch E property tax question - conversion to rental

DianeW777 — Sat, 07 Feb 2026 21:56:24 GMT

Yes, cash basis means exactly that.

Allocation can be determined if you choose, since since the January, 2026 bill received in 2026 for 2025, is for a portion of the year when it was used for personal purposes and rental purposes.

However, when the bill is paid the property is fully rental for all of 2026 and M-MTax has a valid point taking the deduction in a year when the property is rental for the entire year.

The IRS would likely go with the cash basis rules and rental property period all of 2026.

@sockfight-1

@taxmodern

Re: Sch E property tax question - conversion to rental

M-MTax — Sat, 07 Feb 2026 22:49:01 GMT

@taxmodern wrote:
....IRC § 262(a) prohibits deducting personal expenses ("no deduction shall be allowed for personal, living, or family expenses")....

Thet section of the Code is irrelevant to this scenario because the property was NOT being held for personal use in the tax year the expense was paid and Section 164 provides that real estate taxes are allowed as a deduction for the taxable year within which the taxes are paid or accrued. Clearly, they were paid in the tax year that the property was being held for business use and note that the language contemplates an either/or situation (i.e., it's in the disjunctive).

I believe your contention could be summed up by stating that the deduction (Schedule E) should not be allowed because the tax payment is a personal expense, not a business expense or expense incurred for the production of income. However, the property was NOT being used for personal purposes at the time the taxes were paid. This scenario is not much different than if the owner had bought an appliance in 2024 in anticipation of securing a renter in 2025 AND did not actually pay for the appliance until 2025, which would make the expense deductible in 2025.