Rental income and expenses are reported on Schedule E. The rent you collect is income; the costs of operating and maintaining the property are deductions against it.
What you can deduct
Mortgage interest, property taxes, insurance, repairs, management fees, utilities you pay, advertising, and travel to the property. Repairs are deducted when made; improvements are depreciated over time — an important distinction.
Depreciation: the quiet giant
Residential rental property is depreciated over 27.5 years, giving you an annual deduction even when the property is gaining value. It is the reason many rentals show a tax loss while producing real cash flow. Skipping depreciation is one of the most expensive mistakes DIY landlords make — the IRS assumes you took it when you sell, whether or not you did.
Selling changes everything
When you sell, depreciation is 'recaptured' and taxed, and the remaining gain is usually a capital gain. Good records from day one — purchase price, improvements, depreciation taken — determine how painful that bill is.
Your situation
General information only — your return may differ. If this article sounds like your situation, let's look at it properly.
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