Answers · Individual tax · Form 1040
How Is Rental Income Taxed?
Rental income is generally taxable and qualifying expenses may be deductible, with depreciation and passive-activity rules often central.
How it works
The rule, and what it turns on.
Improvements are generally capitalized; refundable deposits generally are not rental income when received if they must be returned.
Example
$24,000 rent less $5,000 operating expenses and $7,000 depreciation is reported on Schedule E subject to limitations.
Common mistakes
What we see go wrong, and what we do instead.
- Expensing improvements as repairs.
- Failing to depreciate building.
A better approach
- Maintain a property-level fixed asset and passive-loss schedule.
Authority
Where this comes from, so you can check it.
IRC §§61(a)(5), 162, 167, 168, 469 and 280A; Schedule E instructions; IRS Publication 527.
Relevant case law
Midland Empire Packing Co. v. Commissioner, 14 T.C. 635 (1950) - classic repair-versus-improvement analysis.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- What Expenses Can Rental Property Owners Deduct?
Have this question about your own books?
Thirty minutes with someone who does this every day, and you will know where you stand. No obligation.