Key takeaways
- Mortgage interest goes on line 12 when a bank sent a Form 1098, and on line 13 when it did not.
- A repair keeps the property in an ordinarily efficient operating condition. A betterment, restoration or adaptation is capitalized.
- Residential buildings are depreciated straight line over 27.5 years with the mid-month convention, and land is never depreciated.
- Personal use above the greater of 14 days or 10% of rental days makes the unit a home for expense purposes.
Map each cost to its Schedule E line
Schedule E reports each rental property in Part I. The expense lines run from line 5 through line 18, and the instructions say to enter ordinary and necessary expenses not listed on lines 5 through 18 on line 19, with a short description beside the amount.
The instructions name the lines for the costs most owners carry. Rental income goes on line 3. Auto and travel goes on line 6, using the standard mileage rate of 70 cents a mile for 2025. Tax preparation fees for the rental go on line 10. Mortgage interest goes on line 12 or line 13, repairs go on line 14, and depreciation goes on line 18, computed on Form 4562.
Property taxes, insurance, management fees, utilities, cleaning, advertising and supplies each have a labeled line between line 5 and line 18. The instructions list taxes, insurance, management fees and repairs as deductible ordinary and necessary expenses, but the text I checked does not print those line numbers. Use the printed label on the form for the year you file.
Mortgage interest: line 12 or line 13
The 2025 instructions say the recipient should send a Form 1098 by January 31, 2026, when the borrower paid $600 or more of mortgage interest in 2025. Ask the lender for the form in January, and keep a copy in the rental file.
Decision rule: if the lender is a bank or other financial institution and the interest appears on a Form 1098, enter it on line 12. If the lender is a private person, a seller carrying the note, or no Form 1098 arrived, enter the interest on line 13.
Interest on a home that is partly rented splits the same way as other costs. The rental share goes on Schedule E, and the personal share can go to Schedule A if the owner itemizes. Never put the same interest on both.
Repairs versus improvements
Publication 527 sorts capital work into three groups. A betterment fixes a pre-existing defect or enlarges the property. A restoration replaces a substantial structural part or rebuilds to a like-new condition. An adaptation converts the property to a use it was not intended for when renting began. Other work can generally be deducted as repairs or maintenance.
The line 14 test is whether the work keeps the property in an ordinarily efficient operating condition. Patching a roof leak, replacing a broken window pane and fixing one leaking supply line are repairs. Replacing the whole roof usually falls under restoration, because the roof is a substantial structural part, so treat it as capital.
Failure mode: a contractor bills a leak fix and a full supply-line replacement as one job, and the bookkeeper enters the whole invoice on line 14. The fix is to split the invoice by line item before entry, then send the replacement to the preparer for capitalization.
The de minimis safe harbor covers small items. An owner without an applicable financial statement can deduct amounts up to $2,500 per invoice or item under the safe harbor, and the publication says those amounts go on line 19 of Schedule E. The election is made by attaching a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to the timely filed original return, including extensions.
Depreciation: 27.5 years and the mid-month convention
Residential rental property is depreciated straight line over 27.5 years, and Publication 527 requires the mid-month convention. The depreciable base is the building, not the land. You can't depreciate the cost of land, so split the purchase price using the assessed values for real estate tax purposes when the fair market values are not clear.
Depreciation starts when the property is placed in service, meaning ready and available for a specific use in the activity. A unit ready for rent counts even if no tenant has signed. Enter the result on line 18, with Form 4562 for the calculation. The 2025 instructions require attaching Form 4562 for property first placed in service that year, and they list the other cases to check for older buildings.
Worked method: divide the building basis by 27.5 for a full year. A building placed in service in March gets 9.5 months of the first year under the mid-month convention, so multiply the full-year figure by 9.5 divided by 12. Run the same method for each capitalized improvement, with its own placed-in-service date.
Decision rule: when the client bought the property during the year, use the first day the unit was ready for rent as the placed-in-service date, not the date of the first lease. Failure mode: depreciating the whole purchase price, including land, which overstates line 18 every year until it is corrected.
Personal use: the 14-day and 10% test
A unit is treated as a home when personal use is more than the greater of 14 days or 10% of the days it is rented to others at a fair rental price. Expenses are divided between rental and personal use based on the days used for each purpose, and only the rental share goes on Schedule E.
Worked example: the unit is rented 200 days at fair rent and used personally for 25 days. Ten percent of 200 is 20, which is greater than 14, so the threshold is 20 days. Personal use of 25 days is more than 20, so the home rules apply. The rental share is 200 of 225 days, and the personal share can go to Schedule A if the owner itemizes.
If personal use is at or below the greater of 14 days or 10% of rental days, the home rules do not apply to that year. If the unit was used as a home and rented for fewer than 15 days in 2025, the instructions say to leave the rental income off and deduct no rental expenses. Keep a day count for each year.
Records to collect by category
Ask for documents by category, and say what each one must show. A bank deposit does not show the rent-by-month split the preparer needs, so ask for the rent ledger as well.
Rent and deposits: a rent ledger or bank deposit report by month, plus any security deposit kept for damage or unpaid rent. Mileage: a log with the date, miles, destination and purpose of each trip to the property.
Interest and taxes: Form 1098 from each lender, the property tax bill with proof of the amount paid in the year, and the insurance declarations page with the premium paid. Repairs and improvements: each invoice with the date, payee, line-item description and amount, plus any permit for capital work.
Depreciation: last year's Form 4562 or depreciation schedule, the placed-in-service date for new property, and the land and building split. Personal use: a calendar that marks each day as rented, personal use or vacant.
Client wording: "Please send a list of every day in 2026 the unit was rented, used by you or your family, or left empty, and the date it first became ready for rent." Send it with the invoice request, and ask for line-item detail on any job over $2,500.
Tax year 2026: what to check before filing
The line numbers, the 27.5-year period, the 14-day and 10% test and the $2,500 safe harbor come from the 2025 editions of Publication 527 and the Schedule E instructions, and from the IRS de minimis page last reviewed 04-Aug-2026. They describe 2025 returns as printed. Before a 2026 return is prepared, check the 2026 Schedule E and its instructions, because line labels and the Form 4562 rules can change between editions.
The $600 Form 1098 threshold applies to 2025 interest in the instructions. Confirm the threshold for 2026 interest before a client email quotes it.