Rental Income Taxation

If you rent a building, apartment, or house you will need to report that income on your taxes. What is rental income, what can you deduct, and how do you report it? We will answer those questions and more in this article.

What Exactly is Rental Income?

Rental income is any payments you receive in return for the leasing of your property. This is typically based on monthly rental earnings. Security deposits would only be considered income if you do not plan on returning it to your tenant at the end of the rental period. Additionally, if a tenant pays a cancellation charge to get out of their lease, you would count that payment as rental income.

What is Deductible?

A deduction is an expense you incur during renting your property that can help decrease your tax liability. This includes the following:

• Mortgage interest
• Expenses like utilities and advertising
• Expenses required to maintain the quality of the property
• Restorations and adaptions needed by the tenant
• Some depreciation costs for home items like appliances

Is There Anything I Cannot Deduct?

If you renovate your rental property it is considered a discretionary expense and is not deductible. Additionally, the mortgage payment itself is not deductible.

When Do I Report My Rental Income?

You pay taxes on rental income the year the income was received. Not when the rent is applied. For example: if rent is paid in 2026 for 2027 coverage, it is countable as income in 2026.

Where Do I Report Rental Income?

You will report your income on Schedule E of your Form 1040. If you have more than 3 rental properties, you will need to file a separate Schedule E for each property. You will pay tax on the income minus eligible expenses.

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