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PERSONAL FINANCE
Tax news and advice

Tax Q&A: We're renting a property. What can we deduct?

John Waggoner
USA TODAY

Tax Day is here. Every day leading up to it, members of the American Institute of Certified Public Accountants have answered selected tax questions fromUSA TODAY'sreaders. Today's installment is the last of the series.

Q. We moved out of our home for work reasons a couple of years ago, and leased the home given the state of the housing market at the time. We still have interest, taxes, insurance and other expenses that we are paying on the property. We are told by our accountant that we have to claim 100% of the rental income as earnings, but cannot count the other costs on the property as expenses to offset that income. Can that be correct?

For Rent signs are seen in Fremont, Neb., on April 9, 2014.

A. If you move but keep your house as a rental property and you receive a fair rental market income from renting your prior home, you stop deducting mortgage interest on the home on the date of your move, and you begin taking rental property deductions including mortgage interest, property taxes, insurance, maintenance expenses and depreciation when tenants move in. The depreciation formula is the asset cost divided by its useful life. The useful life of residential rental property is 27.5 years.

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If you buy a building for $250,000 and allocate $50,000 to the land cost (land itself is not depreciable), the depreciation is $7,273 every year for 27.5 years. Because of depreciation, it is possible to make an actual profit but show a paper loss for tax purposes. Your rental income in this case is tax-free. See IRS Publication 527 "Residential Rental Property" http://www.irs.gov/publications/p527/index.html

Jimmy L. Williamson, CPA, MDA Professional Group, P.C., Albertville, Ala.

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