How Much Is Income Tax On Rental Property: A Comprehensive Guide?

Income tax on rental property can be complex, but understanding your obligations is key to maximizing your returns. This comprehensive guide, brought to you by income-partners.net, explains how rental income is taxed, what deductions you can claim, and how to accurately report everything to the IRS. Partner with us to optimize your rental income and navigate the tax landscape effectively. Let’s explore strategies for tax-efficient property management, uncovering potential tax savings, and ensuring compliance.

1. What Constitutes Rental Income?

Rental income encompasses all payments received for the use or occupancy of a property. It’s crucial to understand what the IRS considers rental income to accurately calculate your tax liability.

The IRS mandates that all rental income be included in your gross income. Rental income includes any payment you receive for the use or occupation of property. You must report rental income for all your properties.

In addition to regular rent payments, several other types of receipts qualify as rental income:

Advance Rent: Any amount received before the period it covers is considered advance rent. You must include it in your rental income for the year you receive it, regardless of the period covered or your accounting method. For instance, if you receive $12,000 in December 2024 for rent covering January to December 2025, you must report the entire $12,000 on your 2024 tax return.
Security Deposits: Security deposits used as the final rent payment are considered advance rent and must be included in your income when you receive them. If you plan to return the security deposit to the tenant at the end of the lease, do not include it in your income when you receive it. However, if you retain any portion of the security deposit because the tenant did not fulfill the lease terms, include the amount you keep in your income for that year.
Payments for Canceling a Lease: If a tenant pays you to cancel a lease, the amount received is considered rent. Include this payment in your income for the year you receive it, regardless of your accounting method.
Expenses Paid by Tenants: If your tenant pays any of your expenses, you must include these payments in your rental income. You can deduct these expenses if they are deductible rental expenses. For example, if your tenant pays the water bill for your rental property and deducts it from the normal rent payment, include the utility bill payment and any amount received as a rent payment in your rental income.
Property or Services Received: 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. For example, if your tenant is a painter and offers to paint your rental property instead of paying rent for two months, include the amount the tenant would have paid for two months’ worth of rent in your rental income.
Lease with Option to Buy: 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.
Part Interest in Rental Property: If you own a part interest in rental property, you must report your part of the rental income from the property.

2. What Rental Property Tax Deductions Can You Claim?

Understanding the available deductions can significantly reduce your taxable income. It’s important to keep accurate records of all expenses to maximize your tax benefits.

If you receive rental income from a dwelling unit, you can deduct certain rental expenses on your tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.

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Here’s a detailed breakdown of common deductions:

Mortgage Interest: You can deduct the interest you pay on your mortgage for the rental property. This is often the largest deduction for rental property owners.
Property Taxes: Real estate taxes paid on the rental property are deductible.
Operating Expenses: Ordinary and necessary expenses for managing, conserving, and maintaining your rental property can be deducted. Ordinary expenses are those common and generally accepted in the business. Necessary expenses are those deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.
Repairs: You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep it in good operating condition. However, improvements are not deductible but can be depreciated.
Depreciation: Depreciation allows you to recover the cost of your rental property over its useful life. You can recover some or all of your improvements by using Form 4562 to report depreciation, beginning in the year your rental property is first placed in service and in any year you make an improvement or add furnishings. Only a percentage of these expenses are deductible in the year they are incurred.
Insurance: Premiums paid for insurance coverage on the rental property are deductible.
Utilities: If you pay for utilities for your rental property, such as water, electricity, and gas, you can deduct these expenses.
Advertising: Costs associated with advertising your rental property to attract tenants are deductible.
Legal and Professional Fees: Fees paid for legal and professional services related to your rental property, such as attorney fees and accounting fees, are deductible.
Travel Expenses: Travel expenses incurred for rental property repairs can be deducted, provided you keep records that follow the rules in Chapter 5 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

3. How To Calculate Income Tax On Rental Property?

Calculating income tax on rental property involves several steps, including determining your gross rental income, subtracting allowable deductions, and applying the appropriate tax rates.

The basic formula is:

Taxable Rental Income = Gross Rental Income – Allowable Deductions

Here’s a step-by-step guide:

Calculate Gross Rental Income: Add up all the rental income you received during the year, including rent payments, advance rent, security deposits used as final rent payments, payments for canceling a lease, expenses paid by tenants, and the fair market value of property or services received.
Identify Allowable Deductions: Determine all the deductible expenses you incurred during the year, such as mortgage interest, property taxes, operating expenses, repairs, depreciation, insurance, utilities, advertising, and legal and professional fees.
Subtract Deductions from Income: Subtract the total amount of allowable deductions from your gross rental income.
Determine Tax Rate: The taxable rental income is then subject to your individual income tax rate. This rate depends on your overall taxable income for the year and your filing status.
Report on Schedule E: Report your rental income and expenses on Schedule E (Form 1040), Supplemental Income and Loss. This form is used to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, and trusts.

For example:

Gross Rental Income: $30,000
Mortgage Interest: $10,000
Property Taxes: $3,000
Insurance: $1,000
Repairs and Maintenance: $2,000
Depreciation: $5,000
Total Deductions: $21,000
Taxable Rental Income: $30,000 – $21,000 = $9,000

This $9,000 would then be added to your other taxable income and taxed at your individual income tax rate.

4. Understanding Passive Activity Loss Rules

The passive activity loss rules can limit the amount of rental losses you can deduct. It’s important to understand these rules to avoid unexpected tax liabilities.

The IRS has specific rules about passive activities, which can affect how much of your rental losses you can deduct. Rental activity is generally considered passive, meaning you don’t materially participate in the management or operation of the property. According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, passive activity loss rules impact the tax strategies of rental property owners, making it essential to understand these regulations to optimize tax benefits.

Here are the key points:

General Rule: You can only deduct passive losses to the extent of your passive income. If you have $10,000 in rental losses but no passive income, you generally cannot deduct the full $10,000 in the current year.
Carryover Losses: Losses that you cannot deduct in the current year can be carried forward to future years. These losses can be used to offset passive income in those future years.
$25,000 Exception: There is an exception for individuals who actively participate in the rental activity and have an adjusted gross income (AGI) of $100,000 or less. These individuals can deduct up to $25,000 of rental losses, even if they don’t have passive income. The $25,000 exception is phased out for taxpayers with AGI between $100,000 and $150,000.
Active Participation: Active participation means you make management decisions regarding the rental property, such as approving tenants, setting rental terms, and approving repairs.

For example, if you have an AGI of $90,000 and $20,000 in rental losses, you can deduct the full $20,000 because you are below the $100,000 AGI threshold and meet the active participation requirement. However, if your AGI is $120,000, the $25,000 exception is reduced, and you may not be able to deduct the full $20,000.

5. Recordkeeping Requirements for Rental Property

Maintaining thorough records is crucial for accurately reporting income and expenses and substantiating your deductions in case of an audit.

Good records will help you monitor the progress of your rental property, prepare your financial statements, identify the source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

Here are the key recordkeeping requirements:

Rental Income Records: Keep records of all rental income received, including rent payments, advance rent, security deposits used as final rent payments, payments for canceling a lease, expenses paid by tenants, and the fair market value of property or services received.
Expense Records: Maintain records of all expenses related to the rental property, such as mortgage interest, property taxes, insurance premiums, repair costs, utility bills, advertising costs, and legal and professional fees.
Depreciation Records: Keep records of the cost of the rental property, the date it was placed in service, and the depreciation method used. You will need this information to calculate depreciation deductions each year.
Proof of Payment: Retain documentary evidence of all expenses, such as receipts, canceled checks, and invoices. These documents will help you substantiate your deductions in case of an audit.
Lease Agreements: Keep copies of all lease agreements with tenants. These agreements outline the terms of the rental arrangement, including the rent amount, payment schedule, and responsibilities of the landlord and tenant.
Bank Statements: Retain bank statements showing deposits of rental income and payments of rental expenses.
Travel Records: If you incur travel expenses for rental property repairs, keep records that follow the rules in Chapter 5 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

6. Reporting Rental Income and Expenses on Schedule E

Schedule E (Form 1040) is used to report rental income and expenses. Understanding how to fill out this form accurately is essential for tax compliance.

If you rent real estate such as buildings, rooms, or apartments, you normally report your rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I. List your total income, expenses, and depreciation for each rental property on the appropriate line of Schedule E.

Here’s a step-by-step guide on how to fill out Schedule E:

Property Information:
- In Part I, provide the address and description of your rental property.
- Indicate whether you meet the active participation requirements.
Rental Income:
- Report your gross rental income on line 3. This includes all rental payments, advance rent, and any other income related to the rental property.
Rental Expenses:
- Report your rental expenses on lines 5 through 22. These expenses include advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, mortgage interest, repairs, supplies, taxes, utilities, and other expenses.
- Be sure to include the correct amounts for each expense. Keep accurate records to support your deductions.
Depreciation Expense:
- Report your depreciation expense on line 18. You will need to use Form 4562, Depreciation and Amortization, to calculate the amount of depreciation to enter on line 18 of Schedule E.
Total Income or Loss:
- Calculate your total income or loss from the rental property by subtracting your total expenses (lines 5-22) from your gross rental income (line 3).
- Enter the result on line 23.
Passive Activity Loss Rules:
- If your rental expenses exceed your rental income, your loss may be limited by the passive activity loss rules and the at-risk rules. See Form 8582, Passive Activity Loss Limitations, and Form 6198, At-Risk Limitations, to determine if your loss is limited.
Personal Use of Dwelling Unit:
- If you have any personal use of a dwelling unit that you rent (including a vacation home or a residence in which you rent a room), your rental expenses and loss may be limited. See Publication 527, Residential Rental Property, for more information.

7. Impact of Short-Term Rentals on Income Tax

Short-term rentals, like those through Airbnb, have unique tax implications. Understanding these differences is crucial for compliance and potential tax benefits.

Short-term rentals, such as those facilitated through platforms like Airbnb, have unique tax implications compared to long-term rentals. Here are some key considerations:

Active Participation: Short-term rentals often require more active participation from the property owner, which can affect the application of the passive activity loss rules. If you materially participate in the management and operation of the short-term rental, you may be able to deduct losses that would otherwise be disallowed under the passive activity loss rules.
Self-Employment Tax: If you provide substantial services to your short-term rental guests, such as cleaning, meals, and concierge services, the income may be subject to self-employment tax. This is because the IRS may consider the activity to be a business rather than a passive rental activity.
Qualified Business Income (QBI) Deduction: If your short-term rental activity is considered a business, you may be eligible for the Qualified Business Income (QBI) deduction under Section 199A of the Internal Revenue Code. This deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income.
Personal Use Limitations: If you use the short-term rental property for personal purposes, your rental expenses may be limited. The IRS has specific rules for allocating expenses between personal use and rental use.
State and Local Taxes: Short-term rentals may be subject to state and local taxes, such as sales tax, lodging tax, and occupancy tax. Be sure to comply with all applicable state and local tax laws.

8. Claiming Depreciation on Rental Property

Depreciation is a significant deduction for rental property owners. Understanding how to calculate and claim it correctly can result in substantial tax savings.

Depreciation is a way to recover the cost of your rental property over its useful life. It allows you to deduct a portion of the cost of the property each year, reducing your taxable income.

Here’s how to calculate and claim depreciation:

Determine the Depreciable Basis: The depreciable basis is typically the cost of the property plus any improvements, less the value of the land. Land is not depreciable.
Identify the Recovery Period: The recovery period is the number of years over which you can depreciate the property. For residential rental property, the recovery period is 27.5 years. For nonresidential real property, the recovery period is 39 years.
Choose a Depreciation Method: The most common depreciation method for rental property is the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, you use a specific depreciation method and convention to calculate the depreciation deduction each year.
Calculate the Annual Depreciation Deduction: To calculate the annual depreciation deduction, you divide the depreciable basis by the recovery period. For example, if you have a residential rental property with a depreciable basis of $275,000, the annual depreciation deduction would be $275,000 / 27.5 = $10,000.
Report Depreciation on Form 4562: Report your depreciation deduction on Form 4562, Depreciation and Amortization. This form is used to claim depreciation on assets used in your business or rental activities.
Keep Accurate Records: Maintain accurate records of the cost of the rental property, the date it was placed in service, and the depreciation method used. You will need this information to calculate depreciation deductions each year.

9. Handling Repairs vs. Improvements for Tax Purposes

Distinguishing between repairs and improvements is crucial, as they are treated differently for tax purposes. Repairs are deductible, while improvements are depreciated.

It’s important to distinguish between repairs and improvements because they are treated differently for tax purposes.

Repairs: Repairs are expenses that maintain the rental property in good operating condition. They are deductible in the year they are incurred. Examples of repairs include fixing a leaky faucet, painting a room, or replacing a broken window.
Improvements: Improvements are expenses that add to the value of the property, prolong its useful life, or adapt it to a new use. Improvements are not deductible but must be capitalized and depreciated over their useful life. Examples of improvements include adding a new room, installing a new roof, or upgrading the electrical system.

The general rule is that if the expense keeps the property in its ordinary operating condition, it is a repair. If the expense makes the property better than it was before, it is an improvement.

According to the IRS, a rental property is improved only if the amounts paid are for a betterment or restoration or adaptation to a new or different use. See the Tangible property regulations – Frequently asked questions for more information about improvements. The cost of improvements is recovered through depreciation.

10. Tax Implications of Selling Rental Property

Selling rental property can trigger capital gains taxes. Understanding how to calculate these taxes and explore potential strategies to minimize them is essential.

Selling rental property can have significant tax implications, particularly concerning capital gains taxes. Here’s what you need to know:

Capital Gains Tax: When you sell a rental property for more than your adjusted basis, you realize a capital gain. The adjusted basis is typically the original cost of the property plus any improvements, less any depreciation you have claimed. The capital gain is the difference between the selling price and the adjusted basis.
Capital Gains Tax Rates: Capital gains are taxed at different rates depending on your income and how long you owned the property. For assets held for more than one year, the capital gains tax rates are generally lower than ordinary income tax rates. As of 2024, the long-term capital gains tax rates are 0%, 15%, or 20%, depending on your taxable income.
Depreciation Recapture: When you sell a rental property, you may be required to recapture some or all of the depreciation you have claimed. Depreciation recapture is taxed at ordinary income tax rates, up to a maximum rate of 25%. This means that the portion of your capital gain that is attributable to depreciation is taxed at a higher rate than the rest of the gain.
1031 Exchange: A 1031 exchange allows you to defer capital gains taxes when you sell a rental property and reinvest the proceeds in a similar property. To qualify for a 1031 exchange, you must meet certain requirements, such as identifying a replacement property within 45 days of selling the original property and completing the exchange within 180 days.
Installment Sale: An installment sale allows you to spread out the capital gains tax over several years. Under this method, you report a portion of the gain each year as you receive payments from the buyer. This can help you reduce your tax liability in any one year.

11. Navigating State and Local Income Taxes on Rental Property

In addition to federal income taxes, rental property owners must also consider state and local income taxes, which can vary significantly.

In addition to federal income taxes, rental property owners must also consider state and local income taxes, which can vary significantly depending on the location of the property. Here’s what you need to know:

State Income Taxes: Many states have their own income tax systems, which may include taxes on rental income. The state income tax rates, deductions, and credits can vary widely from state to state.
Local Income Taxes: Some cities and counties also have their own income taxes, which may apply to rental income. These local income taxes can be in addition to state income taxes.
Nexus: Nexus refers to the connection between a business and a state that subjects the business to the state’s tax laws. If you own rental property in a state where you do not reside, you may be subject to that state’s income tax laws due to nexus.
Nonresident Returns: If you are a nonresident of a state where you own rental property, you may need to file a nonresident income tax return in that state. On the nonresident return, you will report your rental income and expenses from the property.
Withholding Requirements: Some states require tenants to withhold a portion of the rent payments and remit it to the state as income tax on behalf of the nonresident landlord.
Tax Treaties: If you are a foreign investor who owns rental property in the United States, tax treaties between your country and the United States may affect your tax obligations. Tax treaties can provide reduced tax rates or exemptions from certain taxes.

12. Strategies for Tax-Efficient Rental Property Management

Implementing tax-efficient strategies can help rental property owners minimize their tax liabilities and maximize their returns.

Effective tax planning is crucial for rental property owners to minimize their tax liabilities and maximize their returns. Here are some strategies for tax-efficient rental property management:

Maximize Deductions: Take advantage of all available deductions, such as mortgage interest, property taxes, insurance premiums, repair costs, utility bills, advertising costs, legal and professional fees, and depreciation.
Cost Segregation: Consider performing a cost segregation study to identify assets within the rental property that can be depreciated over shorter recovery periods. This can accelerate your depreciation deductions and reduce your taxable income in the early years of ownership.
1031 Exchange: Use a 1031 exchange to defer capital gains taxes when selling a rental property and reinvesting the proceeds in a similar property. This can allow you to continue growing your rental property portfolio without paying taxes on the gains.
Qualified Opportunity Zones (QOZs): Invest in Qualified Opportunity Zones (QOZs) to potentially defer or eliminate capital gains taxes. QOZs are economically distressed communities where investments may be eligible for certain tax benefits.
Retirement Accounts: Consider holding rental property in a self-directed retirement account, such as a self-directed IRA or Solo 401(k). This can allow you to defer or eliminate taxes on the rental income and capital gains generated by the property.
Tax Planning: Work with a qualified tax advisor to develop a comprehensive tax plan that is tailored to your specific situation. A tax advisor can help you identify tax-saving opportunities and ensure that you are in compliance with all applicable tax laws.

13. Common Mistakes to Avoid When Filing Rental Property Taxes

Avoiding common mistakes can prevent potential audits and penalties. Accuracy and thoroughness are key when filing your rental property taxes.

Filing rental property taxes can be complex, and it’s easy to make mistakes that can lead to audits, penalties, and interest charges. Here are some common mistakes to avoid:

Failing to Report All Rental Income: Make sure to report all rental income, including rent payments, advance rent, security deposits used as final rent payments, payments for canceling a lease, expenses paid by tenants, and the fair market value of property or services received.
Overstating Deductions: Be careful not to overstate your deductions. Only deduct expenses that are ordinary and necessary for managing, conserving, and maintaining your rental property. Keep accurate records to support your deductions.
Incorrectly Classifying Expenses: Make sure to correctly classify expenses as either repairs or improvements. Repairs are deductible in the year they are incurred, while improvements must be capitalized and depreciated over their useful life.
Failing to Claim Depreciation: Don’t forget to claim depreciation on your rental property. Depreciation allows you to recover the cost of the property over its useful life and can significantly reduce your taxable income.
Not Following Passive Activity Loss Rules: Be sure to follow the passive activity loss rules when deducting rental losses. These rules can limit the amount of rental losses you can deduct in a given year.
Ignoring State and Local Taxes: Don’t forget to consider state and local income taxes, which can vary significantly depending on the location of the property.
Poor Recordkeeping: Maintain thorough and accurate records of all rental income and expenses. This will help you prepare your tax returns and support your deductions in case of an audit.

14. How To Find a Qualified Tax Advisor for Rental Property

A qualified tax advisor can provide valuable guidance and help you navigate the complexities of rental property taxes.

Finding a qualified tax advisor who specializes in rental property can provide invaluable guidance and help you navigate the complexities of rental property taxes. Here are some tips for finding a qualified tax advisor:

Seek Referrals: Ask friends, family members, or business associates for referrals to tax advisors they have worked with and trust.
Check Credentials: Look for tax advisors who are Certified Public Accountants (CPAs), Enrolled Agents (EAs), or tax attorneys. These professionals have the education, experience, and expertise to provide accurate and reliable tax advice.
Verify Experience: Choose a tax advisor who has experience working with rental property owners. Ask about their experience with rental income, deductions, depreciation, and other tax issues related to rental property.
Check for Specializations: Look for tax advisors who specialize in real estate taxation or have specific expertise in rental property. These advisors will have a deeper understanding of the tax laws and regulations that affect rental property owners.
Review Client Testimonials: Read online reviews and testimonials from other clients to get a sense of the tax advisor’s reputation and level of service.
Schedule a Consultation: Schedule a consultation with several tax advisors to discuss your specific needs and goals. Ask about their fees, services, and approach to tax planning.
Assess Communication Skills: Choose a tax advisor who is a good communicator and can explain complex tax issues in a clear and understandable manner.
Verify Independence: Ensure that the tax advisor is independent and objective. Avoid advisors who have conflicts of interest or may be biased towards certain investments or tax strategies.

15. Resources for Staying Updated on Rental Property Tax Laws

Staying informed about the latest tax laws and regulations is crucial for rental property owners.

Staying updated on the latest tax laws and regulations is crucial for rental property owners. Here are some resources to help you stay informed:

Internal Revenue Service (IRS): The IRS website (irs.gov) is a valuable resource for tax information. You can find tax forms, publications, and guidance on various tax topics, including rental property.
IRS Publications: The IRS publishes numerous publications that provide detailed information on specific tax topics. Some relevant publications for rental property owners include Publication 527, Residential Rental Property, and Publication 463, Travel, Gift, and Car Expenses.
Tax Newsletters and Blogs: Subscribe to tax newsletters and blogs to receive updates on the latest tax laws, regulations, and court decisions. Many reputable tax professionals and organizations offer free or paid newsletters and blogs.
Tax Seminars and Webinars: Attend tax seminars and webinars to learn about new tax laws and strategies. These events are often offered by tax professionals, universities, and professional organizations.
Professional Organizations: Join professional organizations such as the American Institute of Certified Public Accountants (AICPA) or the National Association of Tax Professionals (NATP). These organizations provide members with access to valuable resources, training, and networking opportunities.
Tax Software: Use tax software to help you prepare your tax returns accurately and efficiently. Many tax software programs include features that help you stay updated on the latest tax laws and regulations.
Tax Advisor: Work with a qualified tax advisor who can provide you with personalized tax advice and help you stay updated on the tax laws that affect your rental property.

Navigating the complexities of income tax on rental property requires careful planning, accurate recordkeeping, and a thorough understanding of the applicable tax laws. By understanding what constitutes rental income, claiming all available deductions, and avoiding common mistakes, you can minimize your tax liability and maximize your returns.

Ready to optimize your rental income and navigate the tax landscape with confidence? Visit income-partners.net today to connect with experienced partners who can provide expert guidance and support. Discover new partnership opportunities, implement effective tax strategies, and achieve your financial goals with income-partners.net. Contact us at Address: 1 University Station, Austin, TX 78712, United States. Phone: +1 (512) 471-3434. Website: income-partners.net.

FAQ: Income Tax on Rental Property

1. What is considered rental income for tax purposes?

Rental income includes all payments you receive for the use or occupancy of a property, including rent payments, advance rent, security deposits used as final rent payments, payments for canceling a lease, expenses paid by tenants, and the fair market value of property or services received.

2. What deductions can I claim as a rental property owner?

You can claim deductions for mortgage interest, property taxes, operating expenses, repairs, depreciation, insurance, utilities, advertising, and legal and professional fees.

3. How do I calculate my taxable rental income?

Taxable rental income is calculated by subtracting your total allowable deductions from your gross rental income.

4. What are the passive activity loss rules, and how do they affect my rental property taxes?

The passive activity loss rules limit the amount of rental losses you can deduct. You can only deduct passive losses to the extent of your passive income, although there is a $25,000 exception for individuals who actively participate in the rental activity and have an adjusted gross income (AGI) of $100,000 or less.

5. What records should I keep as a rental property owner?

You should keep records of all rental income received, expenses related to the rental property, depreciation, proof of payment, lease agreements, bank statements, and travel records.

6. How do I report my rental income and expenses on Schedule E?

Report your gross rental income on line 3 and your rental expenses on lines 5 through 22. Include the correct amounts for each expense and use Form 4562 to calculate the amount of depreciation to enter on line 18 of Schedule E.

7. How are short-term rentals, such as Airbnb, taxed differently from long-term rentals?

Short-term rentals often require more active participation, potentially subjecting the income to self-employment tax. They may also be eligible for the Qualified Business Income (QBI) deduction and are subject to state and local taxes.

8. How do I claim depreciation on my rental property?

To claim depreciation, determine the depreciable basis, identify the recovery period, choose a depreciation method, calculate the annual depreciation deduction, and report it on Form 4562.

9. What is the difference between repairs and improvements for tax purposes?

Repairs are expenses that maintain the rental property in good operating condition and are deductible in the year they are incurred. Improvements add to the value of the property, prolong its useful life, or adapt it to a new use and must be capitalized and depreciated over their useful life.

10. What are the tax implications of selling rental property?

Selling rental property can trigger capital gains taxes. The capital gain is the difference between the selling price and the adjusted basis. Also, you may be required to recapture some or all of the depreciation you have claimed.