Rental Property-7 Tips

Do you rent property to others? If so, you’ll want to read the following seven tips from the IRS about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.  Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.

1.  When to report income. You generally must report rental income on your tax return in the year that you actually receive it.

2.  Advance rent. Advance rent is any amount you receive before the period that it covers.  Include advance rent in your rental income in the year you receive it, regardless of the period covered.

3.  Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

4.   Property or services in lieu of rent.  If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.  If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.

5.  Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.

6.  Rental expenses.  Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.

7.  Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use.  If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.



Jodi Whittaker, CPA MST
Whittaker & Associates, Inc.

IRS Changes “Hummer Rules”

“Hummer Rules” Have Changed

New Bonus Depreciation Rules: New SUVs with a gross weight of over 6,000 pounds, placed in service in 2011, can now be a 100% write-off if used 100% for business.

This is due to the new bonus depreciation rules.  Previously, SUVs were limited to a maximum first year deduction of $25,000.  Several years ago this limitation was put into the tax code to prevent large deductions for such vehicles-many called it the “Hummer Rule”.

New pickup trucks with loaded weights over 6,000 can also use this rule. Depreciation rules for work related automobiles remain unchanged for 2011. If you use a vehicle for business, be sure to closely document your mileage even if deducting actual expenses. A 100% business use argument is sometimes hard to substantiate in an audit.

If you can’t prove 100% business use, you can still use the limited deduction as long as the business use exceeds 50% of the total yearly mileage. Also, the SUV must be new-used vehicles do not qualify. Give us a call if you want more details.


Jodi Whittaker, CPA MST
Whittaker & Associates, Inc.