Rental Property

If you own rental real estate, you should know how it impacts your personal tax return.  Rental income
must be reported on your tax return, and generally, associated expenses can be deducted from your
rental income. Reviewing answers to the following common questions regarding rental property may
help you understand the tax implications of rental property ownership:  

  • What is considered rental income?
  • What deductions can I take as an owner of rental property?
  • What are some things I should know about rental property?

What is considered rental income?  

Rental income is any income you receive for the use or occupancy of property you own. Some examples

  • Rent
  • Payment to cancel a lease
  • Advance rent
  • Expenses paid by the tenant
  • Any security deposit kept because a tenant did not fulfill their part of the rental agreement
  • Rental income does not include:
  • A security deposit you are holding with the intent of returning it to the tenant at the end of the
  • Income received from renting your home for fewer than 15 days per year

What deductions can I take as an owner of rental property?  

Deductible expenses for rental property are the ordinary and necessary expenses to manage,
conserve, and maintain your property. Deductible expenses include:

  • Advertising in the newspaper for tenants and cost of signs
  • Cleaning supplies
  • Real estate taxes
  • Mortgage and other interest paid for the rental property
  • Cost of insurance-hazard, flood, fire, or liability
  • Payments for service such as lawn care, pest control, and trash collection
  • Payments for maintenance of the property
  • Professional fees for tax advice and tax return preparation fees for the part of the tax return
    dealing with rental property
  • Cost of new locks and keys
  • Commissions paid for finding tenants
  • Cost of necessary transportation to and from the rental property for the purpose of maintenance,
    management, rent collection, picking up supplies, or checking the property (if you use your
    personal vehicle, either keep track of actual expenses and miles traveled or just the miles
  • Cost of repairs and maintenance (not improvements) to keep your property in good condition (this
    includes items such as repainting and fixing floors and windows)
  • Cost of renting equipment used for the rental property
  • Depreciation of the property (not including the land)
  • Depreciation of appliances, furnishings, and improvements
  • Any long distance calls associated with your rental property
  • The court costs for evicting a tenant
  • Legal fees pertaining to the rental property or tenants
  • Utilities
  • Expenses incurred when the property is not rented as long as you are actively trying to rent the
    property (even if you are renting it for the first time)

You cannot deduct:

  • Rental income lost due to vacancy
  • The cost of improvements which increase the value and/or extend the life of the property or
    modify it for a new use (includes such things as a room addition, new carpet, new appliances,
    fencing, or a new roof - these items can generally be depreciated)

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What are some things I should know about rental property?  

If you rent only part of your property, certain expenses must be divided between the part used as rental
property and the part used for personal purposes.

If you do not rent your property for profit, you can deduct your rental expenses only up to the amount of
your rental income.

When rental property is sold, the resulting gain or loss is treated as ordinary or capital, depending on
the circumstances.

The rental of personal property such as equipment or vehicles is reported as business income. You are
in the business of renting personal property if the primary purpose for renting the property is income or
profit and you are involved in the activity on a continuous and regular basis. If your rental of personal
property is not a business, other rules for reporting will apply.

Deductible losses from residential rental properties are subject to certain limitations. If you are
considered a real estate professional, special rules apply for the reporting of income and losses.
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