Landlords, Tax and Rental Income
Rental income is considered any payment you receive in exchange for the use or occupation of property. For the purposes of federal income tax filings, you must include all rental income as part of your total gross income.
Rental-related incomes can include:
- Advance rent, regardless of the period covered. For example, if you receive $5,000 all at once for the first and last month’s rent on a five-year lease, you’d report the total amount received as income for that filing year.
- Security deposits, if not returned to the renter. Any portion of a security deposit kept because a tenant did not live up to the terms of the lease is considered income.
- Payments which a tenant makes for canceling a lease.
- Any tenant-paid expenses, such as emergency repairs to a broken furnace. The repair cost may then be deductible as a rental expense.
- Property or services in lieu of rent. Include the fair market value, or agreed upon price, as income on your tax return. For example, if a painter/tenant agrees to paint your apartment building in exchange for not paying two months’ rent, you would report the rent’s value, and then typically deduct the painting as a rental expense.
- Lease with option to buy. Payments received under an agreement with an option to buy clause are generally considered rental income. However, payments after the option is exercised are part of the property’s selling price.
- Rental of property also used as a home. If you rent your home out for 15 or more days a year, it is reportable income.
- Part interest. If you co-own a rental property, you must report your proportionate share of the rental income.
Whether you rent out rooms, buildings or apartments, you normally report your rental income in conjunction with your rental expenses.
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