Accounting for Rental Income

When you own a rental home the rental income is any payment you receive for the use or occupation of the property. All rental income must be included in the gross rental income on the Schedule E of your 1040 tax return.

You must report rental income according to the following:

  1. You must report income on your return for the year you actually received it.
  2. Any advance rent must be included in income when you receive it, regardless of the time peroid it is for.
  3. You do not include security deposits as income if you plan to refund it at the end of the lease. If you end up keeping part or all of the deposit, then it becomes income the year it was kept.
  4. If you rent property that you also use as your home and it is rented for fewer than 15 days of the year, then do not include the rent you recieve as income and also, do not deduct the expenses.

If you have any questions about whether or not money collected is actually rental income that should be included on your tax return then it is best to consult your tax advisor.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.