Rental Income
Money received for the use of property you own, including rent payments, advance rent, and security deposits applied to rent. Rental income is generally taxable and reported on Schedule E.
Rental income is any payment you receive for the use or occupation of property. This includes regular monthly rent, advance rent (rent received before the period it covers), lease cancellation fees, and security deposits that are applied to unpaid rent or property damage. All rental income is generally taxable in the year received regardless of when the rental period occurs.
Rental income is reported on Schedule E (Supplemental Income and Loss) as part of your Form 1040. You may deduct ordinary and necessary expenses associated with the rental property, including mortgage interest, property taxes, insurance, repairs and maintenance, utilities you pay, management fees, and depreciation of the building. Depreciation must be taken on the structural value (not land) over 27.5 years for residential rental property.
If your rental expenses exceed rental income, you have a rental loss. Whether you can deduct that loss against other income depends on the passive activity loss rules and your level of participation. The net taxable rental income (or loss) flows from Schedule E to your Form 1040. Rental income may also be subject to the 3.8% Net Investment Income Tax if your modified AGI exceeds the applicable threshold.
Related Terms
Passive Activity Loss
A loss from a business or rental activity in which you do not materially participate. Passive losses can generally only be deducted against passive income, not wages or portfolio income.
Net Investment Income Tax (NIIT)
A 3.8% surtax on the lesser of net investment income or modified AGI exceeding $200,000 (single) or $250,000 (married filing jointly). Applies to interest, dividends, capital gains, and rental income.
Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.