You must report all your rental income on your tax return. From there, the expenses incurred during the period can be deducted from the rental income. As a cash-based taxpayer, you report any yearly rental income, regardless of when you receive it.
What Does The IRS Consider for Rental Income?
Rental income refers to the payment you get for the occupation of a property. You must, therefore, include the rental income of all your real estate. Furthermore, you must also report any other payment you receive apart from the regular rent. You should also report advance rent regardless of the period it covers and the security deposits if you are not returning it to the tenant at the end of the lease. While there are many other payments to report, you may also deduct rental expenses incurred during your tax return. However, ensure that your claims are within limits to be deducted.
You can still deduct rental expenses whether the property is occupied or vacant, but not if you are using it for personal enjoyment. The deductible costs include:
- maintenance and repairs,
- and homeowners insurance.
Besides, you can depreciate the house to wear and tear when unoccupied. If you fail to rent out your property, you are not eligible for deductions due to the loss of rent.
Without any active participation in a rental activity, your rental estate is considered a passive activity. Therefore, it is essential to separate your passive from non-passive activities. With the inactive property, you can’t deduct rental expenses when you don’t have any rental income.
Usage of Rental
You are entitled to your deductions when the house is available for occupation, even when not rented yet. However, once you decide to sell it and take it off the market, the deductions stop.
When you transition your vacation home for rental after the first half of the year, you cannot claim any rental expenses before the change. The costs incurred before the transition date are not rental, but personal.
The deductible rental expenses with no rental income depending on whether the property is for rental or personal use. A residence that is occupied for less than 15 days a year is not taxable, and neither are the expenses deductible with an exemption of mortgage interest. Keeping records allows you to track your rental property incomes and deductible expenses.