The basics on each return
| Federal | Massachusetts | |
|---|---|---|
| Where reported | Schedule E (Form 1040) | Form 1, flowing from the federal figures with Massachusetts adjustments |
| Tax rate | Your bracket, 10% to 37% | 5% (plus 4% surtax above the threshold) |
| Building depreciation | 27.5 years; land is not depreciable | Generally follows federal |
| Bonus depreciation (§168(k)) | Allowed where it applies | Not allowed |
| Section 179 expensing | Allowed with the 2025 law's higher limits | Allowed only without the 2025 law's amendments, and only if claimed federally |
| Rental losses | Up to $25,000 against other income for active participants, phased out between $100,000 and $150,000 of MAGI | Follow the Form 1 instructions |
Owner-occupied two- and three-families
Much of the housing in Brockton, Taunton and the surrounding towns is two- and three-family homes, and many owners live in one unit. IRS Publication 527 covers this directly: when you rent part of a property and live in another part, you divide expenses between the rental part and the personal part.
Expenses that belong only to the rental unit, such as painting it between tenants, are fully rental expenses. Expenses for the whole building, such as the roof, insurance, property tax and mortgage interest, are divided, usually by the share of floor space each unit occupies. Only the rental share of the building is depreciated.
Illustrative example. You own a two-family in Brockton, live in the first-floor unit and rent the second, which is 50% of the building's floor space. Property tax is $6,000 and insurance $2,400. Half, $4,200, goes on Schedule E as a rental expense. The other half of the property tax is a personal expense that may be itemized federally within the SALT cap. Massachusetts does not allow itemized deductions.
Repairs versus improvements
This is the most common judgment call on a rental return. A repair keeps the property in its ordinary operating condition and is deducted in the year paid. An improvement, one that results in a betterment, restores the property or adapts it to a new use, must be capitalized and depreciated.
A new roof, a new heating system or a kitchen renovation is normally an improvement. Fixing a leak, repainting or replacing a broken window pane is normally a repair.
- Keep invoices that describe what was done, not just the total
- Record the date each improvement was placed in service
- Separate work on the rental unit from work on your own unit
Where Massachusetts differs
Massachusetts does not allow the federal bonus depreciation deduction under §168(k). It allows §179 expensing only if you claimed it federally, and only as the law stood before the 2025 amendments, so the Massachusetts figure must be recalculated. Anything bought for a rental that was expensed federally under these rules is depreciated differently on the Form 1, which creates a difference to track every year until the asset is fully depreciated or sold.
Rental income counts toward the Massachusetts 4% surtax, and so does gain when the property is sold. A property owned a long time can produce a gain large enough to cross the threshold in the year of sale.
Records to keep for each property
- Rent received, by unit and month, and security deposits held
- Mortgage interest statement (Form 1098) and property tax bills
- Insurance, utilities you pay, and water and sewer bills
- Repair and maintenance invoices
- Improvements, with dates and costs
- The closing statement from purchase, for basis and the land/building split
- Days the property or unit was rented and days used personally
Where we come in
We prepare Schedule E and the Massachusetts return for small landlords, set up depreciation correctly in the first year, and track the federal and Massachusetts differences year to year. Bookkeeping for rentals is also available if the records need organizing. Before we start, we give you a scope and a price in writing.
Figures on this page were checked against the IRS and Massachusetts sources listed alongside on 28 Sep 2026. They change — confirm the current amount before relying on one.
General information for owner-led businesses, not advice for your specific situation. Tax and accounting rules change, and how they apply depends on facts particular to your business. Talk to us — or to another qualified professional — before acting on anything here.
