Real Estate & Taxes:
Rental income is generally any kind of payment you receive for use of your real estate or personal property. This money is taxable rental income. Expenses related to this real estate and the rental income that you receive for it are reported on E form 1040 (supplemental income or loss). Expenses related to personal property rental and the income from it are report
ed on C or C-EZ form 1040. You report you rental income for the year you receive it. This means if someone stays at your home for 15 days this year and doesn't pay you for it until next year, you do not have to report it this year.
Following are some examples of how to handle different situations with rental income:
- You sign a lease with a client to rent a small store to him. He pays you $12,000 for the first year's rent and $12,000 for the last year in which the lease ends. In this tax year, you must include $24,000 as your rental income. For the IRS, the money you have in your pocket at the moment is what you are taxed on. It does not matter that it is money paid in advance of ten years. As long as you have already received it, you must report it for this year.
- Any amount received for canceling of a lease is considered to be rental income.
- Expenses paid by a tenant for any kind of repairs to your property are considered to be rental income.
- Security deposits are not considered rental income if you plan to return the money at the end of the lease term. If for any reason the tenant does not live up to his lease terms for a particular year and you decide to keep the security deposit, you must report the deposit as rental income for that year. If the tenant plans to use his security deposit as rent for the last month of the lease, this is advance rent so you report it in the year that you receive it.
- If your tenant decides to pay you with property or services instead of money as rent, you have to report the fair market value of these services and property as your rental income.
- If a property is rented for fewer then 15 days a year and you also use this property for a home, you do not need to include the rent you receive for these days as rental income.
- If you have partners in a rental property, you must include your share of the interest from the property as your rental income.