How Do I Claim What I Supplement in Rental Expense on My Taxes?
People frequently rent out vacation homes and investment properties in order to supplement their income from their jobs, particularly during periods when real estate values fall. You must report supplemental income from a rental property to the Internal Revenue Service (IRS) and pay income taxes on the amount you receive. In order to avoid a penalty, it is a good idea to report the income on a quarterly basis and make estimated tax payments throughout the year.
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Instructions
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Count the number of days you used the property for personal use and the number of days you rented it throughout the year. For example, if you own a vacation rental property and use it for a personal two-week vacation, then you used the property for 14 days. Do not report any income if you rent the property less than 15 days. Report only the income and expense related to the number of days rented if you used the property for more than 14 days or for more than 10 percent of the days it was rented.
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Record the income you receive from all rental properties rented more than 15 days on line 3 Schedule E of Form 1040. Include all payments of advanced rent, repair or maintenance expenses paid by tenants and payments to cancel a lease in the current tax year.
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Report all deductible expenses on lines 5 through 17 of Schedule E. Include all expenses you incur throughout the year for advertising, repairs and maintenance, legal fees, taxes, management, travel, interest, mortgage interest, depreciation, utilities, insurance and rental payments. Record depreciation on line 20.
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Add together all the expenses from the rental property and subtract them from the income you are claiming to figure out your net income, or losses, from the rental property. Report this on line 26 of Schedule E.
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Tips & Warnings
Supplemental income from a rental property can push you into a higher tax bracket. Make sure you are estimating your quarterly income and checking your withholdings from your employer to ensure that you are paying the appropriate amount throughout the tax year. Otherwise, you may end up owing the IRS when you file your taxes, which could result in penalties of up to 10 percent of the amount you failed to pay.
