Duplex Owner Tax Tips

by Amber Keefer ; Updated July 27, 2017
Mortgage application and keys to duplex

A duplex is a two-family home that offers homeowners the option of living in one unit and renting out the other. Among its advantages, owning a duplex can help you pay off your mortgage sooner with the rent you collect. Investors are attracted to duplexes because of the tax benefits the federal government offers landlords. Even if you live in one of the units, you can still benefit from the tax breaks you can take for the rental unit.

Deducting Mortgage Interest

The interest you pay on a mortgage loan may be your biggest deductible expense come tax time. If you rent out both units of a duplex, you can claim the mortgage interest you pay as a rental expense on Form 1040, Schedule E. You can claim only half the mortgage interest as a rental expense if you rent only one unit. To claim the remaining half for the unit in which you reside, you must itemize deductions and report it on Schedule A. In addition, you can claim the interest you pay on loans you take out to make improvements to the rental unit.

Deducting Insurance Premiums/Casualty Losses

The premiums you pay for landlord liability insurance and to insure a duplex rental against fire, flood and other hazards are deductible expenses. In the event you suffer a casualty loss, you may be able to claim a full or partial casualty loss deduction on your federal tax return. The amount of the deduction you can take depends on the extent of damage and any insurance reimbursement you receive to cover the loss. Although you can report a casualty loss for both personal-use and income-producing property on either Section A or Section B of Form 4684, you must divide the loss between the two. The IRS guidelines for personal residences and rental properties vary.

Claiming Depreciation

Depending on whether you rent out one or both units of a duplex, you can recover part or all of the cost you paid for the property. While the price you paid is not fully deductible in the year you purchase the property, you can begin reporting depreciation in the year you put a rental unit into service. Depreciation is the method you use to deduct a portion of the property’s value each year over the term of the recovery period. Figure the depreciation deduction on Form 4562 -- Depreciation and Amortization. Although you can take a depreciation deduction for a duplex unit that is residential rental property, you cannot depreciate a unit you use as your primary residence.

Additional Tax Breaks

Even if you live in one of the duplex units, there are numerous expenses you can write off for the rental unit. The property taxes you pay, cost of improvements to keep the property livable, commissions you pay to a rental agent and utilities you pay for the rental unit are additional deductions you can claim. If you use a duplex for both personal and rental use, you must divide expenses as if the two units are separate properties, according to IRS guidelines. Although you cannot deduct improvements you make to a rental unit that add value to the property or extend its service, you can depreciate the cost over a period of several years.

About the Author

Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

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