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Residential Rental Property

For individuals rental income and expenses are included on your personal tax return on Schedule E.

All rental income is included, reduced by rental property expenses. Expenses can include:

  • Mortgage interest

  • Property taxes

  • Insurance

  • HOA fees

  • Utilities

  • Advertising

  • Travel

  • Repairs & Maintenance

  • Management Fees

  • Pest Control

  • Supplies

  • Bank Fees

An additional required tax deduction is depreciation of the structure. Depreciation is calculated as the cost of the structure (not including land) divided over 27.5 years.

Any deductions for depreciation must be recaptured (added back) when the property is sold, resulting in taxes due on the amount recaptured.

Rental income less all expenses results in the rental property profit or loss. Any profits are included in taxable income. Some losses can be deducted in the year incurred (based on total income), others are carried forward to offset future profits or to reduce any gain when the property is sold.

If your rental property generates significant profits, it may be wise to submit quarterly tax payments to cover estimated taxes due on the profits.

The tax requirements are the same if the property is owned by a single member LLC. While there may be legal implications, there is no tax benefit to this setup.

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