Allocation of General Rental Expenses

By Jason Watson, CPA
Posted Sunday, May 25, 2025

You might have general rental expenses that you want to allocate across all your rental properties. For example, a commercial umbrella policy might cost $1,500 in annual premiums. Do you allocate to each rental property? Usually Yes, and there are a handful of reasons why-

• If you want to assess each rental property’s profitability and return on investment, proper allocation is necessary.

• Lumping a bunch of general expenses to one rental property might skew your tax deductions and increase your audit rate risk unnecessarily.

• Not all rental properties are considered the same; some might be long-term, some might be short-term with an average guest stay of 7 days or less, one might be commercial, and another might be a vacation home. Different allocation methods might create some beneficial tax arbitrage depending on the type of rental activity (assuming the method is reasonable and consistent).

• You might have a triple net lease (NNN) where certain expenses are passed onto the tenants. While these expenses are typically directly and solely related to the singular rental property, you might have some general expenses that need an allocation. For example, you buy paint by the pallet since all your properties are painted with the same lovely yet boring colors including the office building.

Ok, now what? How much? There are five basic ways to allocate rental property expenses, and some might not be appropriate depending on the general expense-

• Gross rent

• Value

• Square footage

• Time spent

• Equally (same weight for each)

Back to our commercial umbrella policy. Do you allocate depending on the value of the rental properties? Or do you allocate based on risk assessment where a short-term rental has a lot more opportunity for injury and related problems (risk)? If the short-term rental is also one that is not limited by passive activity loss limits, then that could influence your allocation calculation provided you have a reasonable and consistent method.

There are several general expenses that you might need to spread across your rental properties and real estate investments. These include a work truck that is dedicated to your rentals, an employee that works directly for you and maintains all your properties, an attorney who is on retainer and handles all your real estate matters, a cell phone, bulk supplies such as paper towels or soap, tax return preparation fees, software and application subscriptions, among other examples.

Home office allocation across all your rental properties poses some issues as well given loss limitations and lost expenses. See our home office deduction section.

Keep it simple of course, but also ensure each of your business units, and in this case your rental properties, are accurately reporting their expenses and subsequent tax deductions. While it might not change your ultimate tax footprint or consequence, it is good business stewardship and accounting. As we’ve mentioned throughout this book, your rental properties and real estate investments should be viewed from a business owner’s perspective.

Another version of the allocation of general rental expenses occurs when you list each unit of a multi-family or commercial real estate property as a separate activity. This might be required if some of the units have different purposes. For example, you have triplex, and one of the units is a short-term rental with an average guest stay is 7 days or less, and the other two units are also short-term but do not qualify for the loophole. You could complicate it further by using one of the short-term rentals personally as well and tripping vacation home rules.

In this example, most tax professionals and even the TurboTax DIYer will want to split this single building into separate rental activities on Schedule E of an individual tax return (Form 1040), and perhaps the same on Form 8825 within a partnership tax return (Form 1065). The simple reason is that it reduces the mental gymnastics of which losses are deductible, which losses are carried over and how.

As such, with a single building, you might still have the need to allocate general rental expenses across separate rental activities just like you would if you had several rentals as separate buildings.

See our splitting rental property activity section for more information.