If you rent out your property, cash or the fair market value of property or services you receive for the use of real estate or personal property is taxable to you as rental income.
Most individuals operate on a cash basis. This means they count their rental income as income when they actually receive it and deduct their expenses when they pay them.
Rental income includes:
- Normal rent payments
- Advance rent payments
- Payments for canceling a lease
- Expenses paid by the tenant
Rental income generally does not include a security deposit if the taxpayer plans to return it to their tenant at the end of the lease. But if the taxpayer keeps part or all the deposit during any year because the tenant does not live up to the terms of the lease, then the taxpayer includes the amount kept as rental income in that year.
How do I report my Rental Income?
You can generally use Schedule E for Supplemental Income and Loss to report income and expenses related to real estate rentals. The most common type of real estate rental is a residential rental property. With new services like Airbnb, this type of rental income is becoming more accessible to many taxpayers.
Special rules apply if the taxpayer rents out a dwelling that is considered a residence fewer than 15 days during the year. In this situation, the taxpayer does not report the rental income and does not deduct rental expenses. Publication 527 has more information about these rules.
Rental Income is most commonly reported to you on Form 1099-MISC in Box 1. When entering form 1099-MISC with income in Box 1, the program will automatically prompt you to complete the appropriate Schedule E.
1099 -MISC Entry
- Federal
- Income - Select my forms
- Click Begin next to 1099-MISC
- Complete the payer information and enter the Rent in Box 1
- Click continue, you will then be prompted to create and link Schedule E
Direct Schedule E Entry
If your tenant makes rental payments directly to you, or your rental income amount is less than $600, you may not receive Form 1099-MISC. In this case you can enter your rental income directly on Schedule E.
To do so, go to:
- Federal
- Income - Select my forms
- Profit or Loss from Rentals and Royalties (Schedule E)
- If you made payments to contractors greater than $600 and are required to issue Form 1099-MISC (or 1099-NEC after 2020) check the box, if not then simply continue
- Rental income not already listed on form 1099-MISC is entered in the Box for “Rental Payments Received”
You may wish to view our article regarding rental expenses for additional information.