|This article is to be used only as a
guide. Please check with your accountant before making
any tax decisions or tax reporting. This article
assumes that the landlord is a cash-basis taxpayer. Cash-basis taxpayers report income when
received and expenses when paid.
If you are a
landlord, you will probably report your rental property
taxes on a
1040, Schedule E.
- Rental Payments - Not only will you need to
report money received for rental payments, but also the
fair market value of any property your received in
exchange for use of the rental property.
- Uncollected Rent - A cash-basis taxpayer can
not deduct uncollected rent as an expense.
- Payments to Cancel Lease - If a tenant pays
to cancel his/her lease, this money needs to be recorded
as income on your taxes when you received it.
- Security Deposit - A security deposit does
not need to be recorded as income if you plan on
returning it at the end of the lease. However, if
you keep all or a portion of the security deposit due to
tenant damages to the property, you will need to report
this as rental income. If the security deposit is
used as the final month's rent, you will need to report
it as income when you receive it rather than as
recording it during the final month of the lease.
Keep in mind that a cash basis taxpayer records income
- Depreciation - For residential rental
property placed into service after December 31, 1986,
the depreciable life is 27.5 years. You can only
deduct depreciation on the part of the property used for
rental purposes. Land can not be used for
depreciation on your taxes either. Therefore, when
determining the depreciable value of your rental
property, you will need to check with your county
assessor to find out how much is land. For
example, if you purchased rental property for $250,000
and your tax assessor assessed the value of the land for
$50,000, then the rental property would only be valued
at $200,000. The recovery period for rental
property is 27.5 years, so you would divide the $200,000
by 27.5 years to get $7,272.73 as your annual
depreciation. You can only begin depreciation of a
rental property when it becomes available to tenants.
For example, if you purchase a property in February, but
the property is not made available to rent until July
1st, you can only record 6 months of depreciation on
your taxes in that first year because the property was
not made available until July 1st.
- Repairs - Repair costs are also deductible on
- Improvements - Many improvements to the
rental property are also deductible.
- Operating Expenses - You may also deduct
expenses that are related to operating your rental
property on your taxes.
Please be sure to contact your accountant before making
any decisions or reporting related to rental property taxes.
Return to articles >>