Can You Report Payments for Your Rental Property on Your Taxes?
If you own a house, condo or garage apartment that you're renting out, you can and should include the income and the expenses involved in the rental on your tax return, the IRS states. The IRS has specific requirements for what expenses you can write off and what income you have to report, so make sure to follow the law to avoid tax penalties.
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Time Frame
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If you report your income to the IRS on a cash basis --- meaning you count it as income in the year you receive the money --- then you should do the same for rental income, the IRS states. This includes not only the monthly rent you received in that tax year, but any rent paid in advance or any money you receive to cancel a lease early. Refundable security deposits don't count as income unless and until you keep a portion of the money to cover damages.
Types
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You can deduct certain kinds of rental expenses from your taxable income, the IRS states. This includes repairs and maintenance, whether performed to ready the house for rentals or while someone is renting the unit. Once the property is available for rent, you can claim annual depreciation, a deduction for the wear and tear on the rental over time.
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Identification
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Certain rentals shouldn't be reported on your taxes, the IRS states. If you rent out part of your personal home, for example, and it's for less than 15 days a year, it's below the IRS radar. In this case, don't include the rental income on your tax forms, and don't deduct any related expenses. A particular housing unit counts as a home if you use it more than 14 days in a year or more than 10 percent of the time that it was rented out, whichever is longer.
Warning
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If you rent out part of your home for 15 days or more a year, the income becomes taxable, the IRS states. If you want to deduct expenses, you have to clearly divide the expenses relating to your personal use of the property from those relating to the rental to avoid IRS problems. The same is true if you have a vacation home you use yourself for part of the year and rent out the rest of the time.
Considerations
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Acceptable deductions include repairs to the property, advertising, insurance and utilities; you can also deduct any mileage you spend driving for business related to the rental. If you make improvements to the property --- a new roof, a rec room in the basement or anything that adds to the home's value --- the IRS won't allow you to deduct the cost, although you can take depreciation. The IRS rental rules discuss the distinction between repairs and improvements.
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