Owning rental property can be a great source of income, but knowing how to handle it at tax time is crucial. Let’s walk through the basics of what counts as rental income, deductible expenses, and everything in between!
What Counts as Rental Income?
Rental income isn’t just monthly rent checks. Here are a few other payments you’ll need to report:
- Advance Rent: Any rent paid before the rental period begins.
- Lease Cancellation Payments: If a tenant pays to break the lease early, that’s income.
- Tenant-Paid Expenses: Did your tenant cover a repair or maintenance cost? Include it as income (but don’t worry—you can also deduct it as an expense).
- Property or Services: If a tenant provides services (like painting) instead of paying rent, you report the fair market value as income.
Security Deposits: Income or Not?
It depends! If you plan to return the security deposit, don’t count it as income. However, if you keep part of it (for damages or unpaid rent), that amount must be reported.
What About Expenses?
Good news: many rental expenses are deductible! These include:
- Repairs vs. Improvements: Fixing a leaky faucet? That’s a repair and fully deductible. Installing a new roof? That’s an improvement and must be depreciated.
- Local Transportation: Drive to check on the property? Deduct mileage at 67¢ per mile for 2024.
- Insurance: Premiums are deductible, but if you pay more than 12 months in advance, you’ll need to spread out the deduction.
Renting Part of Your Home?
If you rent out a room, you can deduct a portion of expenses like utilities and insurance. Just use a reasonable method, like dividing by square footage or by the number of people living in the home.
Bonus Tip: The 14-Day Rule
Rent out your home for 14 days or less during the year? That income isn’t taxable, and you don’t have to deduct expenses. Win-win!
Being a landlord comes with perks—and responsibilities. Keep those records organized, and consult a tax pro if you’re unsure about anything. It’s always better to be safe than sorry!
