Rental Property Tax Basics for Landlords | Frequently Asked Questions
Disclaimer: This material is prepared for informational purposes only and is not tax advice. Please speak with a tax professional or view the resources linked in the article to see how this information may apply to you.
If you rent out a space, whether it’s a spare room, a second home, or a vacation property you only use part of the year, you’re considered a landlord by the IRS. That means any rental income you earn needs to be reported on your tax return.
In this post, we’ll cover some of the most frequently asked questions about rental income, tax deductions, and recordkeeping to help you stay organized and prepare you for tax time.
What is Considered Rental Income?
In most cases, all money (and sometimes even services) you receive from a tenant is considered rental income and must be reported on your tax return.
Here are a few common examples:
Monthly Rental Payments: Rental income is counted in the year you receive it, regardless of the period it applies to. For example, if you require new tenants to pay first and last months’ rent in July 2025, both payments will be counted towards your tax return for 2025, even if the last month’s rent covers June 2026.
Lease Cancellation Fees: If a tenant pays a fee to cancel a lease early, that is still considered rental income even though it’s not technically “rent.”
Expenses Paid by Tenants: If your tenant covers a cost you are responsible for, such as a repair, and you reduce their rent by that amount, you still have to report that as income. The good news is that you may be able to deduct that repair expense on your tax return.
Bartered Services in Exchange for Rent: If your tenant offers to do yard work, painting, or repairs in return for rent, you still need to report the fair market value of those services as rental income. For example, if someone mows your lawn for two months in exchange for $600 off rent, you’ll need to include that $600 in your reported income.
While we’re talking about what is considered rental income, let’s go over a couple of examples that are not considered rental income:
Security Deposits: A refundable security deposit is not considered income if you plan to return it at the end of the lease. However, if you end up keeping any portion to cover damages or unpaid rent, then it is reported as income in the year you keep it.
Short-Term Rentals (14 days or less): If you rent out your home for 14 days or less during the tax year, it is not considered rental income and doesn’t need to be reported.
What Can You Deduct as a Rental Expense?
Luckily, landlords can deduct many of the costs associated with operating and maintaining a rental property to help reduce taxable rental income.
Here are some of the most common rental property deductions:
Advertising and marketing costs (listing fees, signs, flyers, etc.)
Auto and travel expenses to visit or manage the property
Cleaning and janitorial services
Commissions paid to rental agents
Depreciation on the property and improvements
HOA fees or condo dues
Insurance (property, liability, landlord policies.)
Legal and accounting fees
Maintenance and repairs
Mortgage interest
Interest on property-related loans
Property management fees
Property taxes
Supplies and materials
Utilities (if you’re paying them instead of the tenant)
If you’re not sure whether an expense is deductible, it’s best to check with a tax professional before claiming it. Some costs, like improvements or large renovations, may need to be depreciated over several years rather than deducted all at once.
How Do I Report Rental Income and Expenses?
Rental income and deductible expenses are reported on a Schedule E (1040), Supplemental Income and Loss, which is attached to your personal tax return.
If you own more than one rental property, you’ll need to list each one separately. This form helps calculate your net rental profit or loss. In some cases, a rental loss may be deductible against other types of income, depending on your income level and how involved you are in managing the property.
What Records Should I Keep for a Rental Property?
Good recordkeeping is essential for rental property owners. It helps you track income and deductions accurately, provides support in case of an audit, and makes tax season a lot less stressful.
Documents you will want to keep include:
Rental agreements and lease contracts
Receipts for repairs, supplies, and services
Bank statements showing rental income deposits and payments
Utility bills (if you pay them)
Mileage logs for property-related travels
Invoices from contractors or service providers
In addition to documentation for income and expenses, you may receive some tax forms that will need to be reported on your tax return:
Form 1099-K: If you receive rental payments through digital platforms like Airbnb, VRBO, PayPal, or Venmo, and you may receive a 1099-K that shows how much you were paid via third-party networks.
Form 1098: This form comes from your mortgage lender and shows how much mortgage interest you paid during the year. Mortgage interest is often deductible for rental properties.
It is best to keep all rental-related documents for at least three years. If you are claiming depreciation or have carryforward losses, you should keep records for up to seven years.
Rental Taxes Made Easy with a Tax Professional
Renting out property can be a great way to earn extra income, but it definitely comes with a handful of tax responsibilities. Knowing what counts as income, what you can deduct, and what records to keep will go a long way in saving you money and stress.
At Northside Tax Service, our tax preparers are experts when it comes to rentals and can help you maximize your deductions, stay compliant, and keep more of your rental income. Give us a call at (360) 922-0235 if you need help filing your taxes or would like to schedule a consultation.