A Brief Guide to Rental Income Tax Laws

Rental Income Tax

Last Updated on March 12, 2024 by admin

The American Dream is quickly becoming an antique. More and more Americans are eschewing their dreams of owning their own homes for the convenience of renting. Not only does it help people save on expenses, but it gives people the freedom to move without having to sell their homes. This trend means that there is good money to be had by transitioning your property to a source of rental income. While you’re raking it in, there’s just one thing you need to think about: rental income tax. Read on to learn what to expect when income tax season rolls around.

Taxing Rental Income

The first question you probably have about rental income tax is how much of your rental income is actually taxable? What qualifies as taxable rental income?

The IRS defines a rental property as a property that you rent to tenants for 15 or more days per year. This includes single-family homes, condos, mobile homes, and much more. The income you generate from your rental property is then tacked on to your regular income for the purposes of filing your taxes.

Rental income includes rent payments, monthly fees for things such as pets or parking, and penalty fees for late payments. Security deposits are not treated as income because they are meant to be returned at the end of the tenancy. If you keep part of the security deposit, then that is included in your income.


Taxable rental income is based on an equation that determines your net rental income for the year. In order to determine your net rental income, you take your total income and subtract expenses. For example, if you made $100,000 in rental income, but your expenses amounted to $25,000, then your net rental income would be $75,000.

What are valid expenses? Maybe you’ve hired a property management firm for single family homes, or you’ve paid turnover costs or maintenance expenses. You can even include utilities, mortgage interest, and landscaping fees.

Filing Taxes

When it comes to filing your taxes, it’s best to hire an accountant to handle your tax return. There are many different deductions that you can take as a property owner to significantly lower your tax liability. Some of the common deductions include depreciation on older properties and qualified business income deductions.

People who have rental income to report must file a Schedule E form on their 1040 or 1040-SR. You must also file Form 4562. If you own several properties, then you may file more than one Schedule E form.

Are You Ready to Tackle Rental Income Tax?

There are so many great reasons why you should consider adding properties that produce rental income to your investment portfolio. Just like any other investment, however, you need to stay on top of what it will cost you when it’s time to pay your income tax bill. Thankfully, rental income tax isn’t super complex, and hiring a qualified accountant can make it even easier to handle!

Taxes, retirement, and healthcare are just a few of life’s most difficult topics to tackle. Thankfully, we’ve spent a ton of time compiling information about those very topics. Browse the rest of our blog for the answers to your most pressing questions.

Apart from that, if you are interested to know about best tips to save money on tax then visit our Finance category.

Previous articleHow Much Will It Cost to Remodel a Kitchen?
Next article5 Tips for How to Put Your Wisconsin Real Estate for Sale Easily
Sophia Anderson
Sophia Anderson is a finance writer and blogger with a passion for helping people improve their financial literacy. With over 5 years of experience in the finance industry, Sophia has worked with individuals, families, and small businesses to provide financial advice and guidance. Her expertise includes budgeting, saving, credit management, and debt reduction. Sophia is dedicated to breaking down complex financial concepts into easy-to-understand language and empowering her readers to make smart financial decisions. She is a frequent contributor to financial publications and has written extensively on topics such as personal finance, investing, and financial planning. Sophia's mission is to help people take control of their finances and achieve financial security and freedom. When she's not writing, Sophia enjoys hiking, practicing yoga, and reading personal finance books.