I have a rental property that doesn't have a mortgage. I am only renting 3 rooms out of 5 (2 rooms are used as storage for my personal items). If I rented out the whole house it would rent for approximately $2,000 a month. Can I make tax deductions on this rental property for insurance and property taxes, since I am not renting out the whole house at full market value?

ANSWER

The BIDaWIZ Team's Answer:

The short answer is that you can still claim tax deductions on the property as long as the rooms you rent are charged at full market value. The whole entire house doesn't need to be rented. You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). This is referenced in IRS Publication 527 & IRC Section 168.