{"id":1062,"date":"2018-09-10T07:37:32","date_gmt":"2018-09-10T07:37:32","guid":{"rendered":"https:\/\/huddlestontaxcpas.com\/?page_id=1062"},"modified":"2020-08-27T21:15:39","modified_gmt":"2020-08-28T04:15:39","slug":"running-a-rental","status":"publish","type":"page","link":"https:\/\/huddlestontaxcpas.com\/self-employed\/running-a-rental\/","title":{"rendered":"3.3 Running a Rental"},"content":{"rendered":"
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Generally, you report income and deduct expenses related to real estate rental property on a Schedule E<\/a>.\u00a0 Rental income can be cash or the fair market value of property you receive in exchange for the use or occupation of your own property.\u00a0 If you partially own a rental property, report your percentage of the rental income from it.\u00a0 If you sometimes use your rental property for personal purposes, divide your expenses between rental and personal use<\/a>.\u00a0 There are special rules relating to the rental of property that you also use as your main home or your vacation home<\/a>.<\/p>\n

If you use the cash method of accounting,<\/a> you report the income for the tax year in which it is received and deduct expenses in the year they are paid.\u00a0 This includes any rent you receive in advance.\u00a0 You cannot deduct uncollected rents as an expense because the rents have not been reported as income.\u00a0 If you use an accrual method of accounting, report the income when you earn it.\u00a0 Uncollected rent may qualify as a business bad debt deduction if you use this method.<\/p>\n

A payment to cancel a lease is also considered rental income.\u00a0 However, a security deposit is not considered income if you plan to return it to the tenant at the end of the lease.\u00a0 But if any of it is kept due to damaged property or a broken lease, this money is taxable income to be reported when assessed.\u00a0 A deposit to be used as the tenant\u2019s final month\u2019s rent is reportable when received, not when applied to the last month\u2019s rent.<\/p>\n

You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property<\/a> from the time you make it available for rent.\u00a0 If a property held for rental purposes is vacant, you may still be able to deduct these expenses until it is rented. However, you cannot deduct any loss of rental income for the period the property is vacant.\u00a0 If you sell property you held for rental purposes, you can deduct the same expenses you would ordinarily deduct until the property is sold.<\/p>\n

Deductible expenses can include depreciation, insurance, taxes, interest, repair costs, maintenance and other operating expenses including rental equipment.\u00a0 The following is a short list of other common expenses:<\/p>\n

— advertising
\n— commissions
\n— legal fees
\n— local transportation
\n— travel expenses<\/p>\n

Mortgage points (also called loan origination fees or premium charges) are prepaid interest.\u00a0 These are generally not wholly deducted in the year paid, but over the term of the loan.\u00a0 Certain mortgage expenses such as mortgage commissions, abstract fees, and recording fees, are capital expenses and can be amortized over the life of the mortgage.<\/p>\n

Repairs and Improvements<\/strong><\/h4>\n

It is important to keep separate the costs of your repairs and improvements.\u00a0 Repairs keep your property in good operating condition but do not materially add to the value of your property, substantially prolong its life, or prepare it for other uses. \u00a0Examples of repairs are repainting walls or fixing broken windows or plumbing.\u00a0 Repair costs can be deducted as rental expenses.<\/p>\n

Improvement costs, on the other hand, must be capitalized.\u00a0 They can generally be depreciated as if the improvement were separate property.\u00a0 For example, the cost of a new roof is an improvement.\u00a0 And if you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.<\/p>\n

Examples of improvements are generally obvious, such as storm windows, heating and insulation, septic tanks, security systems, swimming pools and landscaping, and room additions.\u00a0 Some examples are not so evident, such as flooring or wall-to-wall carpeting. For example, replacing an already existing carpet might be considered a repair or even a casualty loss depending on the reason for the replacement.<\/p>\n

Use\u00a0Form 4562\u00a0to report depreciation of your acquisitions and improvements in order to recover some of your original costs, beginning the year in which they occur.\u00a0 If you use your personal vehicle for rental activities, you can deduct the expenses using the actual expenses or the standard mileage rate; keep accurate records and report these expenses on Form 4562, as well.<\/p>\n

Additional information can be found at www.irs.gov in\u00a0Publication 527 (Residential Rental Incom<\/a>e), Publication 535 (Business Expenses),\u00a0Publication 946<\/a>\u00a0(How To Depreciate Property), and\u00a0Topic 415<\/a>\u00a0(Renting Residential and Vacation Property).<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Generally, you report income and deduct expenses related to real estate rental property on a Schedule E.\u00a0 Rental income can be cash or the fair market value of property you receive in exchange for the use or occupation of your own property.\u00a0 If you partially own a rental property, report your percentage of the rental […]<\/p>\n","protected":false},"author":2,"featured_media":3708,"parent":3518,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"content-sidebar","footnotes":""},"class_list":{"0":"post-1062","1":"page","2":"type-page","3":"status-publish","4":"has-post-thumbnail","6":"entry"},"_links":{"self":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1062","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/comments?post=1062"}],"version-history":[{"count":5,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1062\/revisions"}],"predecessor-version":[{"id":4424,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/1062\/revisions\/4424"}],"up":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/pages\/3518"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/media\/3708"}],"wp:attachment":[{"href":"https:\/\/huddlestontaxcpas.com\/wp-json\/wp\/v2\/media?parent=1062"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}