The real estate are a common investment which can take the form of personal home, a second home or holiday home and rental property. Rental properties allow investors to have real estate as they generate revenue by renting space to tenants. According to the internal revenue service, the rental revenue in general should be included in your gross income when you file your tax return.
Fundamentals of rental income
The rental increases your gross income total and therefore the amount of tax you need to pay. The IRS says that you must include rental income in your tax return for the year in which the income is received. If, for example, a tenant makes a payment amounting to several months of rent in advance before the end of the year, all the income subject to tax for the year in which you received them. According to TurboTax, deposits are non-taxable income if you are going to return to the lessee at the end of the lease contract.
You have to report income as part of your total personal income, but the IRS allows taxpayers to deduct various expenses income from rent that can significantly reduce the amount of taxes owed. TurboTax provides that expenses to ready a property for rental, rental and property maintenance, including cleaning, repairs, advertising, premium insurance, devaluations, expenses of the Association, public services and the maintenance of the garden are tax deductible.
Personal use of the property income
If you have a property that you use to rent part of it and the other party you use it, the IRS says that you have to divide expenditures between personal use and rental of the tax deduction costs. For example, if your personal activities represent 40 per cent of the cost of public services on a property, only we can deduce the 60 per cent of the cost of car rental services. You must also divide expenses if you rent an entire property, such as Villa rentals during part of the year and the other you use it.
If you use a property most of the year and rent it for a very short period, it is likely that you don’t have to pay taxes on rental income. According to the IRS, if you live in a House and rent it for less than 15 days in the year, you should not report the income on your tax return and won’t have to deduct any expenses from income.