IRS Publication 527
Candlefocus EditorIncome from rental properties is subject to federal income tax and must be reported on your tax return. In order to properly report rental income and expenses, you must understand the important tax implications of rental activities. IRS Publication 527 provides information on the types of deductions and expenses you may be able to claim, including the cost of repairs, casualty losses, interest on mortgage payments, real estate taxes, and the depreciation of your property over time.
Depreciation deductions help to reduce your taxable income by allowing you to spread the cost of items such as furniture, appliances, and buildings over their useful life. Publication 527 provides information on how to calculate depreciation deductions, as well as what items qualify.
When you rent part of a property for income, there are some special rules and considerations outlined in IRS Publication 527. Generally, if you rent part of your primary residence, such as a basement or unit on your property, you are treated as if you are renting a separate structure, and may be able to deduct applicable rental expenses. If the rental income from part of your property exceeds the deductible rental expenses, you must report this as rental income on your tax return.
Finally, if you have multiple rental properties, you must keep detailed records and accounting for each property. Publication 527 provides information on what type of records to keep, how to account for expenses, and how to report losses and income from multiple properties.
Overall, it is important to understand the different tax implications of rental activities and comply with the rules outlined in IRS Publication 527. This publication is an essential resource for individuals and businesses who rent residential properties, and should be carefully read and understood.