If you are engaged in rental activities, there are certain expenses that you will only be able to deduct if you own your property. We refer to this group of deductions as "Homeowner Expenses", which are comprised of costs associated with overhead for your home including mortgage interest, real estate taxes, depreciation, etc.
Tasha rents her home from a landlord. Last year she rented her guest bedroom through Airbnb for 275 nights. Even though Tasha rented out her guest bedroom for a substantial portion of the year, she is not eligible to deduct any homeowner expenses. She can only deduct the portion of her operating expenses related to her rental activities.
Homer House is a homeowner who rented out his primary residence through Airbnb for 120 days last year. Since Homer rents out his entire house, 100% of his homeowner expenses on the days he rents can be deducted. Last year he had $45,000 of homeowner expenses, including depreciation, property taxes and mortgage interest. Homer's Schedule E homeowner expenses would be equal to approximately $14,795 ($45,000 x 100% x (120/365)) (deduction subject to passive activity rules).
Lisa owns a second home that she rented for all of last year. Lisa and her family did not use the home for any personal purposes all year. Since her personal use was not more that the greater of 15 days or 10% of the total days rented to others, her second home would be considered a rental property and she can deduct all of her mortgage interest, depreciation and other homeowner expenses related to the property on her Schedule E (to the extent allowed based on passive activity rules).
Nick owns his home and meets criteria that allows him to deduct 35% of his homeowner expenses on his Schedule E. If Nick itemizes his deductions, he can deduct the other 65% of his homeowner expenses on his Schedule A. If Nick takes the standard deduction, he can only deduct the 35% of his homeowner expenses related to rental activities reported on Schedule E.
Donald pays mortgage interest on three homes, one of which he lives in year round, the other two he uses as vacation homes and rents through VRBO. Donald uses his vacation homes for enough personal days each year that he cannot deduct 100% of his homeowner expenses for these properties. When Donald prepares his taxes he will be eligible to deduct on his Schedule E the mortgage interest related to rental use on both of his vacation homes. Additionally, if Donald itemizes, he will be eligible to deduct on his Schedule A the mortgage interest on his year round residence, and the portion of mortgage interest related to his personal use of one vacation home. Note that Donald cannot deduct on his Schedule A the portion mortgage interest for his personal residence and both vacation homes since only two homes can qualify for the mortgage interest deduction.
