8 Deductions for Rental Property Owners

Rental income is the amount you receive when someone uses or inhabits property you own. Rent income is part of your gross income and must be reported on your tax return.

Normal rent payments, like those made monthly, must be reported of course. But say, for example, a tenant sends you an advance rent payment before she occupies a room in your house. That amount must be considered part of your rental income the year you receive the payment. Also considered advance rent are security deposits, but not if the security deposit will go back to the tenant when the lease ends.

What if you receive money from the tenant because the tenant has decided to cancel a lease? In this case, you must include that as part of your income because it is considered rent.

Rental property expenses

Expenses are another consideration. Your tenant may pay some or all expenses associated with a property you own. This is considered income, and you must report it as such on your tax return. (Keep in mind, these expenses may be deductible rental expenses.)

A tenant’s payment may come in the form of a service, too. For instance, if the tenant is a landscaper and it is arranged by you and your tenant that your tenant will do landscaping in lieu of paying rent for three months, you would still include the three months’ rent in your income.

Deductions

If you’re the owner of a rental property, here are some of the deductions you can probably take on your tax return:

  • Mortgage interest
  • Property tax
  • Operating expenses
  • Depreciation
  • Repairs
  • Expenses considered ordinary (common and generally accepted) and necessary (interest, taxes, marketing, maintenance, utilities, and insurance) to manage, conserve, and maintain the rental property
  • Supplies and equipment expenses so that your property remains in good operating condition
  • Expenses paid by the tenant (so long as they are deductible rental expenses)

Masters exemption

Here in Augusta, home of the TaxSlayer headquarters—and home of the Masters—some residents earn a portion of their income by renting out their homes to golf fans from all around the world during Masters week (April 2–8, 2018). In just a single week, a resident in Augusta can generate thousands in extra income. It’s a tax perk sometimes called the Masters exemption.

You’ve got to follow some rules, though. For example, it’s a once-a-year gig, and you can’t rent out space in your primary home for more than 14 days in a single year. Nor can you take deductions for depreciation on your home or operating costs. You can, however, take deductions for property taxes and mortgage interest.

Sounds like a pretty sweet deal to me.

Learn more about credits, deductions, and other tax breaks at TaxSlayer.

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