Rental Property Tax Reporting Tips

Rental property activities are typically reported on the federal Schedule E Income from Rental property on your 1040 individual income tax return unless you are in the business of owning rental property such as a licensed broker, then rental activities would be reported on Schedule C if a sole proprietor or sole member LLC ,or on corporate , partnership, or trust tax returns. Rental income is reported on a cash basis and you must indicate whether you received the information through a 1099 from the renter.

You may deduct all expenses associated with renting the property. These include advertising, management fees,qualified mortgage interest, property and liability insurance, property taxes, water, sewer and other utilities not paid by renters, repairs and maintenance, snow plowing and landscaping, depreciation on the property, and any landlord expenses incurred including travel to and from the property, office supplies, and tools and supplies, telephone expenses, and any other personally reimbursed costs incurred.

Building depreciation costs include the acquisition price for the building(s) only and not the land costs. Any building improvements will be added to the purchase price as depreciable costs. For residential rental property the building costs are depreciated over 27.5 years.  Upon sale of the rental property any depreciation claimed must be subtracted from the tax basis of the sale. This means any depreciation taken on the property will be recognized as a short term or capital gain if the property was held one year or longer.

If the property is owner occupied you must allocate costs according to the square feet of the rental property to total square feet. Common areas will be allocated according to the rental proportion of square feet. If you occupy the property the portion of your main residence’s property tax and mortgage interest costs may be deducted as itemized deductions on Schedule A of your personal tax return.