Graduated college and getting ready to buy a house, then what? Is the plan to live there forever? What happens when it is time to move? For some the answer is yes they plan to live in their first house for the rest of their lives. For others they plan to just sell the house and move to the next when it is time. Then there are the few that decide to keep the old house and make it a rental for some extra income.
Now this house could be a vacation home that they visit one week out of every year, or a condominium they rent out to college students. Either way reporting the income from the rental home is a step in filing the yearly tax return.
Where to Report Rental Income
If renting out the property us just for some extra money, then the income and expenses are reported on the Schedule E, Supplemental Income and Loss. However, if this is how an individual is making a living, by renting out properties, then the income goes on the Schedule C, Profit or Loss from Business (Sole Proprietorship).
After knowing where to report the income and expenses of the rental property, it is important, to understand what would counts as income and expenses.
Income and Expenses
Incomes for the rental property are; amounts paid to cancel the lease, advanced rent payments, and security deposits. These all go into the income made from the rental property.
Some of the rental expenses are; depreciation, repair costs, and operating expenses. Other expenses include such as mortgage interest, real estate taxes, insurance, but there are limitations if the owner uses the house for part of the year, such as a vacation house.
It is only possible to deduct expenses for when the rental property was available to the general population. Therefore, family and friends that can go stay for free or little charge do not count as days the rental property was on the market.
Example:
Family and friends stay for 37 days in the rental home, and the home was then up for rent to the public the other 328 days in the year, then it is possible to deduct 90% of the expenses. Because 90% or the days it was available to the public.
Renting properties gives another person a place to sleep and grow. This also gives extra money the homeowner to help them in next chapter of their life. When renting the property just remember that the income and expenses need to go on the yearly tax return, and the rest will be easy.