Waitingtobuy. I’m not a tax expert, by any stretch, but here is my understanding.
You are allowed to write off up to $25,000 of loss in your rental property. There is a separate form you file along with your 1040, after you declare your rental income.
You can write off mortgage interest, property taxes, HOA fees, mileage driven to/from your rental property, and you are allowed to write off depreciation.
That is the value of the home (I think land is excluded from the depreciation calculation). The useful life of your property is 27.5 years, which you must use for your depreciation calculation, so you get to claim 1/27.5 as a depreciation expense you can write off each year.
All minor repairs, cleaning supplies, etc. can be written off as a direct expense. However, if you do a major upgrade, like put new cabinets in the kitchen. . . The value of that improvement must be added to the value of your home, and used in the depreciation calculation.
Another important thing to consider. You can only write off the full amount of your “loss” of your Adjusted Gross Income is less than $100,000. You lose a write off amount for every dollar over that you make. If your adjusted gross income is $150,000 or more, you cannot write off any losses on your rental income. The amount of your loss sits in a separate account, and you can only write it off against your capital gains upon sale of the house.
Again, I am no expert, this is my rudimentary understanding of the process, which is why I employ a tax professional each year. This stuff makes my head hurt!
