How is Rental Income Reported? • Usually on Schedule E. • A security deposit is not considered income at the time it is received. • Tenant cancellation fees are taxable.
Can I Deduct a Loss? • Rental activity is considered a passive activity. • Losses from the rental are generally allowed provided you rent your property for a fair rental price and actively participate in the rental activity.
What Expenses Are Deductible? • Mortgage Interest • Property Taxes • Insurance • Travel Expenses • Legal or Professional Fees • Advertising • Utilities • Cleaning and Maintenance Fees • Supplies
Repairs vs. Improvements • Improvement – adds to the value or life of the property. • Repair – keeps your property in good operating condition. • Deductible repairs: • Fixing broken windows and doors. • Repainting inside or out. • Fixing gutters. • Repairing leaky plumbing. • Replastering holes.
Repairs vs. Improvements • Examples of improvements: • Additions • Landscaping • Roof, door, or window replacement • Security system • Electrical wiring • Insulation • Siding • Heating and cooling systems • Carpeting • Appliances
Refinancing Your Rental Property • If you refinance, the interest on the mortgage will be traced to the use of the proceeds. • Unless you use the proceeds for improving the rental property, or for purchasing another rental property, you may be losing a deduction. • If you use the proceeds to purchase investment property, you will have investment interest expense.
Selling or Exchanging Your Rental Property • The sale is considered a sale of a business asset. • Keep accurate records of the improvements made. • To avoid paying tax on the gain, consider exchanging the property for another rental property.
Tax Saving Opportunities Rental property can be a great way to increase your bank account. Make sure you are taking advantage of the tax saving opportunities that are available to you. As a tax professional, I’m available to help you do just that.