This chapter discusses rental income and expenses. It also covers the following topics.
- Personal use of dwelling unit (including vacation home).
- Limits on rental losses.
- How to report your rental income and expenses.
If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets.
If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts.
If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. See Publication 527, Residential Rental Property, for more information.taxmap/pub17/p17-042.htm#TXMP21b4d165
You may want to see:
Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562: Depreciation and Amortization 6251: Alternative Minimum Tax—Individuals 8582: Passive Activity Loss Limitations Schedule E (Form 1040): Supplemental Income and Losstaxmap/pub17/p17-042.htm#en_us_publink100032788
You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. taxmap/pub17/p17-042.htm#en_us_publink100032789
If you are a cash basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. You are a cash basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account.
For more information about when you constructively receive income, see Accounting Methods
in chapter 1.
Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. taxmap/pub17/p17-042.htm#en_us_publink100032791
You sign a 10-year lease to rent your property. In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. You must include $10,000 in your income in the first year.taxmap/pub17/p17-042.htm#en_us_publink100032792
Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it. taxmap/pub17/p17-042.htm#en_us_publink100032793
If your tenant pays you to cancel a lease, the amount you receive is rent. Include the payment in your income in the year you receive it regardless of your method of accounting. taxmap/pub17/p17-042.htm#en_us_publink100032794
If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses
, later, for more information.
If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.
If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. taxmap/pub17/p17-042.htm#en_us_publink100032796
If you rent property that you also use as your home and you rent it fewer than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. See Personal Use of Dwelling Unit (Including Vacation Home)
If you own a part interest in rental property, you must report your part of the rental income from the property.