Do I have to Report my Rental Income?

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With very few exceptions, all income earned by American taxpayers – both individuals and entities – is taxable in one way or another. This, not surprisingly, includes income earned by renting property. Whether this income is payable by the individual or an entity depends on who the legal owner of the property is, but the income remains taxable. In fact, people failing to report, or under-reporting rental income is a major source of the “tax gap”, the difference between the amount owed each year and the amount collected each year by the Internal Revenue Service (IRS). This means that owners of rental property face additional scrutiny in the audit process, so the owners or beneficiaries of rental property should be sure to keep proper records.

Generally speaking, rental income includes any and all monies received in exchange for the use or occupation of property, and though this most commonly refers to real estate, it may also apply to other rental properties like storage units or household items (like renting household appliances). Most landlords operate their rental properties on a cash basis, which means that both the amounts received and the relevant deductions are claimed for the specific period of time in which these amounts were received or spent. This makes the reporting of rental income much easier than the alternative models, however it also leads many people to under-report since they do not consider all income received as rental income, though the IRS does.

The basic rent amount is self-evidently something that has to be reported as rental income, but there are also a myriad of other amounts on money received that also count as rental income and must be reported as such. These include, but are not limited to: (a) rent payments made in advance; (b) fees charged for the early termination of a lease; (c) some expenses paid by the tenant for the landlord; (d) property or services received in place of money; and others. Further, there are special provisions for rent-to-own payments and other arrangements related to rental agreements.

Security deposits are not usually considered income and should not be reported as such upon initial receipt. However, if the land lord opts to retain all or part of the security deposit once the initial agreement is concluded because the tenant did not live up to his obligations; this retained portion of the security deposit becomes income and has to be reported as such. This is one of the most common mistakes made by landlords and one that RS auditors are careful to look for when examining a landlord’s records.  

Offsetting this reportable income is also a wide range of deductions that can be claimed as expenses by the landlord. These can range from major devaluations through depreciation to minor deductions such as the purchasing of materials for maintenance of the rental property. The overall tax ramifications of owning and renting property can be complicated, so it is frequently in the landlord’s best interest to hire a tax professional to help them determine what has to be reported and what deductions can be claimed.


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21 Responses to “Do I have to Report my Rental Income?”

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  1. Comment by Pat Noblin — February 6, 2012 at 12:58 pm  

    We have two houses because we are unable to sell. My daughter lives in one of them and pays the payment. Do I have to claim that as income?

  2. Comment by manager — February 6, 2012 at 5:22 pm  

    Hi Pat. The short answer is Yes. If you are charging and collecting rent, then you need to declare it as income. I would suggest you contact one of our tax professionals…they may be able to offset that income with credits and or expenses. Call us toll free at 888-APRIL-15. Thanks!

  3. Comment by Robert Meadows — September 6, 2012 at 8:02 pm  

    Question… I have a friend that has been renting her houe for 4 and a half yrs and has not claimed it at all. Is this wrong? What could happen if they found out?

  4. Comment by manager — September 10, 2012 at 9:37 am  

    The short answer is “Yes”; anytime income is not reported to the IRS it’s “wrong”. What can happen to the person that does not report the income earned is dependent on a) how much income was not reported and b) how long it has been going on and c) if you get caught! The repercussions rarely result in something serious like jail time. But you can be sure that if your friend is found out, they will get hit with interest and penalties which could lead to garnishment of future refunds and accounts. If you’d like to discuss this more, you can contact us toll free at 888-APRIL-15 and speak to an experience income tax advisor for a free consultation.

  5. Comment by Alan FosterSeptember 15, 2012 at 1:03 pm  

    A retired couple rent a mobile home to us on their property, which they live on also. They have rented to us for almost two years at $300 a month. They have never reported this income. Starting 10-1-12 our rent will increase by $40, and increase by $40 every six months. What could my wife and I do?

  6. Comment by manager — September 17, 2012 at 10:24 am  

    @ Alan I assume you don’t agree with the increase and are insinuating threatening to report your landlord for failure to claim income on their tax return. While this is your right, your relationship with your landlord will be assuredly irrevocably damaged and you’d be evicted not long after. My advice to you is to if you like your current living arrangements is to a) find comparable living arrangements and increases that are less than what you are currently paying and negotiate your rent down from there.

  7. Comment by Margaret — December 30, 2012 at 6:07 pm  

    I rent my condo. Do i report only the money after i pay my condo mortgage and mIntenance gee? ? I am 69 and retired, how much money can i earn thT needs to be teported to irs?

  8. Comment by manager — March 20, 2013 at 7:39 am  

    @Margaret. You must claim all gross income. You can then deduct expense. If you own a rental property, you have to file a return every year, even if the income is below the IRS guidelines for filing.

  9. Comment by Pam — November 14, 2013 at 5:10 pm  

    How would I report a person who has not been filing rental income on their tax returns.

  10. Comment by Jason — March 13, 2014 at 12:48 am  

    I have been renting a mobile home for two years the landlord refuses to fix items broken such as heater , leaking , roof etc he also feels to brag about not paying taxes on for a long period of time , we are moving since rent is too expensive and need a smaller place , now we are getting serious problems after we told them we are moving yelling and threats to evict us things like that , my question is if I report them how do I do It and my view is I pay taxes through a tax preparer to be sure I do it right each year why not them , yes it’s out of anger of the way we are being treated and wanted to keep things civil so why should they get away with it what advice can you give me thanks

  11. Comment by manager — March 13, 2014 at 11:25 am  

    Hi Jason. Sounds like you’re in a sticky situation. I am not sure what state you live in, but every tenant has certain protections. Usually, a landlord cannot evict you for no reason. If you have a formal lease, usually it is spelled out what you can be evicted for. If it is an informal lease or no lease at all, you have less protections, but again, those protections vary from state to state. All income regardless of where it is received needs to be reported to the IRS. The IRS does have a whistleblower program http://www.irs.gov/uac/Whistleblower-Informant-Award. If you want to follow through on reporting your landlord, this would be a good place to start. If you need any tax assistance personally, feel free to contact an R&G Brenner professional at http://www.rgbrenner.com/contact. Thank you.

  12. Comment by willie — March 15, 2014 at 7:04 pm  

    I started renting out my home last year . Are there any income limits on the deductionsI did not see it Mentioned.

  13. Comment by manager — March 17, 2014 at 11:36 am  

    Hi Willie, I’d need more info from you before I can answer that question. If you’d like to speak to an R&G Brenner professional I can arrange that. Please contact us a http://www.rgbrenner.com/contact/ Thanks!

  14. Comment by Willie — March 18, 2014 at 9:44 pm  

    Thanks for your response. I was able to find the information i was looking for here:

    http://www.nolo.com/legal-encyclopedia/can-you-deduct-your-rental-losses.html

  15. Comment by Kristi — March 27, 2014 at 11:57 am  

    In 1985 my husband and his parents jointly purchased a condo (his parents put up all the cash). My husband occupied the condo, paid the mortgage and expenses, handled the repairs, renovations, etc. as if he was the sole owner for the entire period that they owned it. It was his primary residence since 1985 except for a year in 1995/1996 when he rented it. When it was sold, my husband got all of the proceeds, which we expect are exempt from capital gains taxes (it was way less than $250K).

    Now that it’s tax time, we have learned that for the first ten years his parents claimed the condo as a rental property and took the depreciation. My husband never paid them rent (he paid the mortgage directly to the bank), so I assume they didn’t report any income during that time. In 1995, my husband started claiming the mortgage interest deduction and his parents stopped claiming the depreciation.

    Was it ok for his parents to claim the depreciation for ten years? I am concerned that it wasn’t ever really a rental and they owe that money to the IRS.

  16. Comment by Kristi — March 27, 2014 at 12:05 pm  

    To clarify: the condo was sold late last year. My husband occupied the condo as his primary residence until we got married (a few weeks prior to closing.

  17. Comment by R&G BrennerJune 2, 2014 at 1:25 pm  

    @Pam,

    Here is a good place to start if you wish to report tax fraud:

    http://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

  18. Comment by Mike KuensterAugust 1, 2014 at 2:02 pm  

    We have a cabin that occasionally someone will request to stay in it for several days upto a week or so and over the course of a year we may receive checks or cash totally $2-3,000. Does this need to be reported? I had heard that if you receive less than a specific amount each year in what otherwise might be deemed as “rental income,’ it does not have to be reported. If we are required to report this, I am assuming we can offset it with any applicable expenses. Any feedback is greatly appreciated.

  19. Comment by manager — August 4, 2014 at 7:25 am  

    The general rule of thumb is that all “income” derived from rentals must be reported. If you’d like an experienced tax professional to review your tax situation, please feel free to contact us at http://www.rgbrenner.com/contact

  20. Comment by Russel Wilcox — November 9, 2014 at 5:52 am  

    Hi. My landlord just got busted by the Dept of Buildings and the Fire Department for having 3 illegal tenants in the house he owns. One tenant has lived there for 7yrs the other over 10. They each pay $800 a month to the landlord. That is a lot of free money that Im sure is not reported to the IRS. What can I do report him?

  21. Comment by manager — November 10, 2014 at 10:33 am  

    @Russel Wilcox. This IRS has a whistleblower program which you can find out more about here http://www.irs.gov/uac/Whistleblower-Informant-Award. If you need any other assistance, please feel free to contact directly at (888) APRIL-15. Thank you.

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