Rental Property Income: What to Report and What to Deduct on Your Taxes

Rent income is part of your gross income and must be reported on your tax return.

Types of Rental Income to Report

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 they physically occupy a room in your house. That amount must be considered part of your rental income the year you receive the payment.  

Security deposits may also be included as incomebut only if the security deposit does not go back to the tenant when the lease ends. 

If you receive money from the tenant for a canceled lease, you must include that as part of your income because it is considered rent. 

If your tenant pays some or all expenses associated with your property, this is considered income, and you must report it as such on your tax return. Keep in mind, these expenses may also 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. 

8 Tax Deductions You Should Consider

If you’re the owner of a rental property, here are some of the deductions you might be eligible to take on your tax return: 

  • Mortgage Interest Deduction – This deduction allows homeowners to deduct the interest on up to $750,000 of qualified residence loans. Learn more.  
  • Property tax – The IRS allows you to deduct up to $10,000 for state and local taxes (SALT), and that can include what you pay for real property.  
  • Insurance – You can deduct the premiums you pay for coverage related to your rental. That includes landlord liability, theft, fire, and flood, and more. 
  • Depreciation – In most cases, you won’t be able to write off the full cost of a rental property the first year you purchased it, but you can depreciate your asset and deduct the expense over time.  
  • Repairs – Replacing carpet, repainting, fixing the roof, etc. Keep all receipts for your repairs and deduct those costs from your taxable income when you file.  
  • Home office  Do you operate your rental activity out of a designated space in your home? You may be able to deduct $5 for every square foot of home office space you use. Learn more. 
  • Professional and legal services – If you pay a lawyer, accountant, or other professional to do work specifically related to your rental, those fees are considered operating expenses and can be deducted on your return.  
  • Pass-through tax deduction – The Tax Cuts and Jobs Act gives pass-through business owners the ability to deduct up to 20% of their qualified business income on their federal income tax return.    

Do you rent your space on Airbnb? Read also: Airbnb Tax Advice Guide

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