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Employment

How to Report Rental Property Income on Your Taxes

If you rent real estate such as buildings, rooms or apartments you must claim the gross amounts of all rental income received on your tax return. Rental income includes payments to occupy or use your property for a specified period of time.

Tips and Key Deductions for Landlords

In addition to scheduled rent payments, the following amounts should be reported on Form 1040, Schedule E, Part I on your tax return in the year you receive them.

  • Advance rent – any amount you receive before the period it covers. This includes security deposits given up front for final payment of rent or any portion of the security you keep for damages to the rental unit. Do not include a security deposit in your rental income if you plan to return it to the tenant at the end of the lease. 

  • Expenses paid by tenant – if your tenant pays any of your expenses, like the water bill, and deducts it from their rent payment; include the bill paid by the tenant and the cash amount received for rent in your rental income. 

  • Lease cancellation fee – if your tenant wants to move before their lease expires and pays you to break their lease, this is considered rental income and must be included on your return. 

  • Lease with option to buy - if the rental agreement gives your tenant the right to buy your rental property the payments you receive are rental income. 

  • Part ownership - If you own partial interest in rental property, report the amount of rental income you received. 

  • Services received – if you agree to let your tenant provide a service like painting or repair in place of cash for rent, include the fair market value of the service in your rental income. 

As a landlord, you can deduct the ordinary and necessary expenses to manage and maintain your rental property, including:

  • Mortgage interest

  • Operating expenses

  • Real estate taxes

  • Repair costs

  • Casualty losses

  • Maintenance

  • Utilities

  • Insurance

  • Depreciation

  • Advertising

  • Professional fees such as bookkeeping, legal, and tax prep

You can also deduct the expenses paid by the tenant if they are part of their rental expenses like utilities.

You cannot deduct the cost of improvements or the cost of the rental property. These costs are recovered through depreciation. Use Form 4562 to report depreciation beginning in the year your rental property was first placed in service.

 

 

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