Louie owns a duplex. Both units are exactly the same size. Louie resides in one unit and rents the other. In 2024, Louie paid $5,900 in real estate taxes for the whole building. Where are the real estate taxes Louie paid shown on the tax return?

Answer 1

For a taxpayer who owns a rental property, the real estate taxes paid can typically be deducted on their tax return. Since Louie owns a duplex and rents out one of the units, he can allocate part of the real estate taxes to the rental property based on the proportion of the building being rented out.

1. Deducting Real Estate Taxes: Louie would report the real estate taxes on Schedule E (Supplemental Income and Loss) of his tax return (Form 1040). The portion of the taxes related to the rental unit can be deducted as an expense against the rental income he receives.

2. Calculation: Since both units are of equal size, Louie can deduct half of the real estate taxes paid as an expense. So, he would report $2,950 ($5,900 total taxes ÷ 2) as a deduction on Schedule E.

3. Reporting: The deduction for real estate taxes would decrease the taxable rental income, thus potentially lowering Louie's overall tax liability.

Overall, Louie will report and deduct the portion of real estate taxes related to the rental unit on Schedule E of his tax return.