Navigating taxes on rental income
Owning real estate can be an extra income stream, but it also comes with tax responsibilities. In fact, if you own rental property, you’ll find that you have several additional tax tasks. Specifically, the IRS requires that you report all rental income on your tax return, as well as the associated expenses.
Whether you’re renting one property or many, we’ve detailed what you should know about reporting rental income on your tax return, including the rental income tax rate, important rental income tax forms, and general tips for claiming rental income on taxes.
What qualifies as rental income?
First, let’s define what counts as rental income. Essentially, it’s any payment you receive for the use or occupation of property that you own. You’re responsible for reporting rental property income on your tax return for all your properties.
Rental income includes:
- Advance rental payments
- Current payments
- Late payments
- Expenses paid by tenants
Payments you receive for lease cancellation and forfeited security deposits are rental income. They’re income for the year:
- The lease is canceled
- The security deposit is forfeited
What’s the rental income tax rate?
Curious what the rental income tax rate is? Well, there’s no one set rate for taxing rental income. Rental income is taxed as ordinary income – using progressive tax brackets, which range from 10 to 37%, depending on your filing status and taxable income. Taxing rental income also requires special tax forms, which we’ll outline next.
Important rental income tax forms to know about
If you rent real estate, you’ll want to be familiar with a few rental income related tax forms. Some of these will show the rental income you received or payment for services. Others will be used to report all of your income (including your rental income). We’ll cover that in the next section.
1099 for rental income
There are three types of 1099 rental income related forms. We’ll outline them by situation:
Reporting rental income on your tax return
Typically, the rental income tax forms you’ll use to report your rental income include: Form 1040 or 1040-SR, Schedule E.
Here are the steps you’ll take for claiming rental income on taxes:
- List your total income, expenses, and depreciation for each rental property on Schedule E.
- Read the Instructions for Form 4562 to figure your depreciation amount. Enter this number on line 18 of Schedule E.
- If you have