Rental income is any money you receive from letting someone else use property you own
Rental income includes rent payments, but also fees, deposits you keep, and payments for services tied to the rental. The IRS counts it as taxable income in the year you receive it, whether you get a check, a bank transfer, or cash. You report it on Schedule E (Form 1040), the form for rental property and royalty income.
The key rule: if someone pays you to use your property, and you keep the money, it is rental income. This applies whether you own a single-family home, an apartment building, a vacation cabin, or even a parking space. It does not matter if you rent it out for the whole year or just part of the year.
Key Takeaways
- Rental income includes the monthly rent payment plus late fees, pet fees, parking fees, and any deposits you do not return to the tenant.
- You report rental income on Schedule E (Form 1040) in the year you receive the money, not the year the tenant owes it.
- You can deduct rental expenses like mortgage interest, property tax, repairs, insurance, and utilities from your rental income to lower your taxable amount.
- Even if you rent out a room in your home or a vacation property for part of the year, the income is taxable and must be reported.
What types of payments count as rental income
The most obvious rental income is the monthly rent payment itself. But the IRS also counts several other payments as rental income. If a tenant pays you a late fee because they missed the rent important date, that fee is rental income. If you charge a pet fee, a parking fee, or a fee for using a garage or storage space, those are all rental income.
Deposits work differently depending on whether you return them. A security deposit that you hold and return to the tenant at the end of the lease is not rental income — it belongs to the tenant. But if you keep part or all of a deposit because the tenant damaged the property or broke the lease, the amount you keep is rental income in the year you keep it. The same rule applies to cleaning fees or damage fees you charge and keep.
If you provide services as part of the rental — for example, you include utilities, internet, or parking in the rent, or you provide cleaning or laundry service — the value of those services is part of your rental income. You cannot separate it out and claim it is not income just because you provide something in return.
When you report rental income
You report rental income in the tax year you actually receive the money, not the year the tenant owes it. If a tenant pays you rent in December for January, you report it in the year you received it (December). If a tenant owes you rent for December but does not pay until January of the next year, you report it when you receive it (January of the next year).
This matters because it changes which tax return the income goes on. Most people use the cash method of accounting, meaning they report income when they receive it and deduct expenses when they pay them. Some landlords with larger operations use the accrual method, which reports income when it is owed and expenses when they are incurred, but you need IRS permission to use that method.
Rental income from different types of properties
A single-family home you rent out is rental property. So is a duplex, an apartment building, a vacation cabin, a condo, or a mobile home. You report all of it on Schedule E. If you own multiple rental properties, you list each one separately on Schedule E, but you file only one Schedule E with your tax return.
If you rent out a room in your home while you also live there, the income from that room is still rental income and must be reported. The same applies if you rent out a vacation home for part of the year and use it yourself for the rest of the year — you report the rental income for the months you rented it out.
If you rent out furnished property and the furniture is included in the rent, the rental income includes the value of the furnished use. You cannot deduct the furniture as a separate business expense and then claim the income is lower because furniture was included.
How rental income affects your taxes
Rental income is added to your other income (wages, interest, capital gains) to calculate your total taxable income. The more rental income you have, the higher your tax bracket may be. However, you can reduce your taxable rental income by deducting rental expenses.
Common rental expenses you can deduct include mortgage interest (not the principal), property tax, homeowners insurance, repairs and maintenance, utilities you pay, property management fees, advertising to find tenants, and depreciation of the building itself. You cannot deduct the cost of improvements that add value to the property in the year you make them — those are capitalized and depreciated over time.
If your rental expenses are higher than your rental income, you may have a rental loss. Depending on your income level and how involved you are in managing the property, you may be able to deduct some or all of that loss against your other income, or you may have to carry it forward to future years. The rules for rental losses are complex and depend on your specific situation.
Reporting rental income on your tax return
You report rental income and expenses on Schedule E, which is filed with your Form 1040. Schedule E has separate sections for each property you own. For each property, you list the address, the type of property, the number of days you rented it out, the number of days you used it personally (if applicable), and then your income and expenses.
You will need records of all rent payments received, including the date and amount. If you received any other payments (late fees, pet fees, damage charges kept from deposits), list those separately. Then list all your expenses in the categories provided: advertising, auto and travel, cleaning and maintenance, commissions, insurance, mortgage interest, repairs, taxes, utilities, and other.
Keep receipts and documentation for all expenses you deduct. The IRS can ask to see proof that you paid for repairs, insurance, property tax, or any other expense you claimed. If you cannot document an expense, you cannot deduct it.
Frequently Asked Questions
Is a security deposit I hold for a tenant considered rental income?
No, not unless you keep it. A security deposit belongs to the tenant and is not income when you receive it or hold it. If you return the full deposit at the end of the lease, it was never income. If you keep part of it for unpaid rent or damage, the amount you keep becomes rental income in the year you keep it.
Do I have to report rental income if I only rented out my property for a few months?
Yes. Any rental income, no matter how short the rental period, must be reported on Schedule E. If you rented out a vacation home for three months, the income from those three months is taxable and must be reported in the year you received it.
What if I let a family member live in my property rent-free?
If you do not charge rent, there is no rental income to report. However, if you later charge rent or accept voluntary payments, those payments become rental income and must be reported. You cannot avoid reporting by calling it a gift if money actually changed hands.
Can I deduct the cost of furniture I bought for my rental property?
Furniture is a capital asset and cannot be deducted in the year you buy it. Instead, you depreciate it over its useful life (usually seven years for furniture). You claim a portion of the depreciation each year on Schedule E. Talk to a tax professional about the correct depreciation method for your situation.
Do I report rental income if I use a property management company to collect the rent?
Yes. The rental income is yours whether you collect it directly or a property management company collects it on your behalf. You report the full rental income on Schedule E, then deduct the property management fee as an expense. The company may send you a statement showing what they collected and what they paid you after their fee.