Rent Payments

• The IRS generally includes rent payments as taxable income. Rental income is income in the year the tenant pays the landlord. If the landlord accepts any advance rental payments or accelerated payments, then the landlord must deduct it in the same year he receives it.
  
  

Deductions for Repairs to Rentals

• Expenses used for the upkeep of the rental property without adding to the property's value are deductible in the same tax year as the repair. However, improvements to property require taxpayers to capitalize the total expenditures and depreciate the total improvement cost over the property's useful life. Common deductions for repairs include tax and legal fee costs, insurance and interest premiums and tax payments. Additionally, rental property owners can deduct the portion of travel used to produce the business income of renting properties.
  
  

Personal Use and Rental Use

• The government provides special tax rules for taxpayers who use the property as a combination of both rental property and personal residential property. Homeowners do not have to report any rental income if the property was rented for less than 15 days annually but may not claim any expense or repair deductions. If the property owner rents the property for 15 or more days annually, then the owner must report the rental profits as rental income.
  
  

Deductions for Rental Income Losses

• The IRS allows rental property owners to claim a loss on rental income but categorizes it under "passive" or "active" losses. Passive losses are losses of rental income. The IRS may require the property owner to suspend or defer losses during the tax year if the taxpayer's net income is less than the total losses. Active losses occur if the taxpayer's normal business is renting properties and considered active real estate participants. If the taxpayer's only business activity is renting property, then the taxpayer categorizes the loss as an active loss. Active losses can offset the taxpayer's gross income but the federal government limits the amount to the total amount used for the rental business.
  
  

Deductions for Property Losses

• If the rental property owner experienced a loss arising from an unexpected casualty such as a tornado, then the owner can deduct the value of the loss. Additionally, theft losses are deductible. However, property owners must offset the amount of the loss by insurance proceeds exceeding the fair market property value.
  
  

Finding Tax Law Advice

• Since tax laws may frequently change, you should not use this information as a substitute for legal tax advice. Seek an attorney's advice licensed to practice tax law in your jurisdiction.