Residential  Rental  Property

 
(Including 
Rental of 
Vacation Homes)

taxmap/pubs/p527-000.htm#TXMP18e74088 Reminder(p1)

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Photographs of missing children.(p1)

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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Introduction

This publication discusses rental income and expenses, including depreciation, and explains how to report them on your return. It also covers casualty losses on rental property and the passive activity and at-risk rules.

taxmap/pubs/p527-000.htm#TXMP1a1b13db Sale of rental property.(p1)

For information on how to figure and report any gain or loss from the sale or other disposition of your rental property, get Publication 544, Sales and Other Dispositions of Assets.

taxmap/pubs/p527-000.htm#TXMP08ff51df Sale of main home used as rental property.(p2)

For information on how to figure and report any gain or loss from the sale or other disposition of your main home that you also used as rental property, get Publication 523, Selling Your Home.

taxmap/pubs/p527-000.htm#TXMP51236875 Comments and suggestions.(p2)

We welcome your comments about this publication and your suggestions for future editions.

You can write to us at the following address:

 
Internal Revenue Service 
Individual Forms and Publications Branch 
SE:W:CAR:MP:T:I 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

taxmap/pubs/p527-000.htm#TXMP0c15e625 Ordering forms and publications.(p2)

Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.

 
National Distribution Center 
P.O. Box 8903 
Bloomington, IL 61702-8903

taxmap/pubs/p527-000.htm#TXMP75ba833d Tax questions.(p2)

If you have a tax question, check the information available on www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Useful items

You may want to see:

See How To Get Tax Help at the end of this publication for information about getting these publications and forms.

taxmap/pubs/p527-000.htm#TXMP6ce78263 Rental Income(p2)

Rental Income

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. In addition to amounts you receive as normal rent payments, there are other amounts, discussed later, that may be rental income.

taxmap/pubs/p527-000.htm#TXMP2b9986a4 When to report.(p2)

When you report rental income on your return depends on whether you are a cash basis taxpayer or use an accrual method.

If you are a cash basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. You are a cash basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account.

If you use an accrual method, you generally report income when you earn it, rather than when you receive it. You generally deduct your expenses when you incur them, rather than when you pay them.

For more information about when you constructively receive income and accrual methods of accounting, see Publication 538, Accounting Periods and Methods.

taxmap/pubs/p527-000.htm#TXMP1024339d Advance rent.(p2)

Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

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Example.(p2)

You sign a 10-year lease to rent your property. In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. You must include $10,000 in your income in the first year.

taxmap/pubs/p527-000.htm#TXMP2bd26b41 Security deposits.(p2)

Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it.

taxmap/pubs/p527-000.htm#TXMP4c0999ed Payment for canceling a lease.(p2)

If your tenant pays you to cancel a lease, the amount you receive is rent. Include the payment in your income in the year you receive it regardless of your method of accounting.

taxmap/pubs/p527-000.htm#TXMP707c4979 Expenses paid by tenant.(p2)

If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses, later, for more information.

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Example 1.(p2)

Your tenant pays the water and sewage bill for your rental property and deducts it from the normal rent payment. Under the terms of the lease, your tenant does not have to pay this bill. Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. You can deduct the utility payment made by your tenant as a rental expense.

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Example 2.(p2)

While you are out of town, the furnace in your rental property stops working. Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. You can deduct the repair payment made by your tenant as a rental expense.

taxmap/pubs/p527-000.htm#TXMP2952b0b6 Property or services.(p2)

If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.

If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.

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Example.(p2)

Your tenant is a painter. He offers to paint your rental property instead of paying 2 months' rent. You accept his offer.

Include in your rental income the amount the tenant would have paid for 2 months' rent. You can deduct that same amount as a rental expense for painting your property.

taxmap/pubs/p527-000.htm#TXMP031e6261 Lease with option to buy.(p2)

If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price.

taxmap/pubs/p527-000.htm#TXMP2e89f9e9 Rental of property also used as a home.(p2)

If you rent property that you also use as your home and you rent it fewer than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. See Personal Use of Dwelling Unit (Including Vacation Home), later.

taxmap/pubs/p527-000.htm#TXMP5f9a368c Part interest.(p2)

If you own a part interest in rental property, you must report your part of the rental income from the property.

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