IRS Tax Accounting for Rental Property
Rental earnings are one of the more composite tax entries for lots of taxpayers. There are different feature of the income and related operating cost that one requirement to consider when filing tax returns. Below are some of the rules that apply to rent income:
General Rule – The general rule that applies to rental income is that all such incomes are taxable and require to be reported on the Schedule E under “Rental earnings”. These earnings are included in ones Adjusted Gross Income (AGI) and a tax rate is applied according to the taxpayer’s tax bracket.
Deductible Expenses – A taxpayer who reports rental assets income is also allowed to deduct rental related expenses against the rental income. These deductible expenses include repairs and maintenance costs, depreciation of building and fittings such as furniture, utilities, property taxes, and mortgage interest. These expenses are listed on Schedule E against the rental income. You will require keeping appropriate records to prove the expenses listed at the Schedule E. Rental income is a red-flag item for the Internal Revenue Service and you require ensuring that all your transactions are above board.