How Do You Calculate Taxable Income On Rental Properties?
• Determine whether you want to be a cash basis or accrual method taxpayer. The cash basis is the more common method. • With a cash basis method, you report rental income that you actually receive during the tax year. • With an accrual method, you report rental income based on when you earn it. • Add up all sources of income from rental properties. This includes rent, advance rent and the following: • Fees paid to cancel a lease. • Utilities and other expenses paid by the tenant. • Services or property you receive in lieu of cash for rent. • Security deposit amounts that you decide to keep, usually at the termination of the lease. (A security deposit that you receive and intend to return to the tenant at the termination of the lease should not be included in income when it’s received.) Use Schedule E, Supplemental Income and Loss to calculate taxable income on rental properties. If you own an interest in the rental property, report only your percent of income. • Enter total income from
