It’s that dreaded time of year again when we all have to buckle down and work on our taxes. This process can be a little more complicated for those that own renal property. Here are answers to some general questions that most landlords have when it comes to rental property taxes:
Is the income from rental property taxable?
Yes, the income is taxable but the whole amount you collect is not necessarily taxable. You may subtract the cost of getting your rental ready to rent and the amount of money to maintain the rental property. Report rental income and expenses on Schedule E and file it with you Form 1040.
If I receive rent in January of 2015 for December of 2014, in what year do I report it?
You would report the rental income on your 2014 tax return because you received it in 2014. You always report the rent for the year you received it.
Are Security Deposits Taxed?
No, security deposits that are intended to be returned to the tenants at the end of the lease are not taxable. If you incur damages from tenant and have to keep part of the security deposit then you must report that money as income. It would however be offset by the deduction on you Schedule E for the cost of repair for the damages
Note that a deposit for a last month’s rent is taxable when you receive it because that is simply rent paid in advance.
What can I deduct on my rental property income?
All the expenses you pay for in maintaining and managing your rental property are typically deductible. Note that even if the property is vacant but you’re maintaining it, you can add up those expenses to set against your rental income when you get it.
- Yard maintenance
- Homeowner association dues and condo fees
- Insurance premiums
- Interest expense
- Local property taxes
- Management fees
- Pest control
- Professional fees
- Rental of equipment
Keep good records even though it can be a hassle. You must be able to back up any deductions you take!