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Publication 17

Chapter 9
Rental Income and Expenses(p68)

This chapter discusses rental income and expenses. It also covers the following topics.
If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets.
If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts.
If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. See Publication 527, Residential Rental Property, for more information.


Useful items

You may want to see:

 527 Residential Rental Property
 534 Depreciating Property Placed in Service Before 1987
 535 Business Expenses
 925 Passive Activity and At-Risk Rules
 946 How To Depreciate Property
Form (and Instructions)
 4562: Depreciation and Amortization
 6251: Alternative Minimum Tax—Individuals
 8582: Passive Activity Loss Limitations
 Schedule E (Form 1040) : Supplemental Income and Loss

Rental Income(p68)

In most cases, you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income.

When to report.(p68)

If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account.
For more information about when you constructively receive income, see Accounting Methods in chapter 1.

Advance rent.(p68)

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 or the method of accounting you use.


You sign a 10-year lease to rent your property. In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. You must include $10,000 in your income in the first year.

Canceling a lease.(p68)

If your tenant pays you to cancel a lease, the amount you receive is rent. Include the payment in your income in the year you receive it regardless of your method of accounting.

Expenses paid by tenant.(p68)

If your tenant pays any of your expenses, the payments are rental income. Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. See Rental Expenses, later, for more information.

Property or services.(p68)

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.

Security deposits.(p68)

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.
If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it.

Part interest.(p69)

If you own a part interest in rental property, you must report your part of the rental income from the property.

Rental of property also used as your home.(p69)

If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. See Personal Use of Dwelling Unit (Including Vacation Home), later.