Real Estate Rentals
Use Schedule E (Form 1040) to report rental income and expenses.
If you provide substantial services (e.g., cleaning, concierge), report income on Schedule C (Form 1040) instead.
Personal Property Rentals
If you’re in the business of renting personal property, report it on Schedule C (Form 1040).
If you're not in the business of renting, report income on Schedule 1 (Form 1040), Line 8l and expenses on Line 24b.
Rental Income
Most individuals report rental income and expenses on a cash basis, meaning:
Income is reported when received.
Expenses are deducted when paid.
Rental income includes:
Lease cancellation payments received from tenants.
Advance rent, even if it covers future years.
Tenant-paid expenses, which are also deductible if qualified.
Security deposits, if kept due to lease violations or damages.
Rental Expenses
You may deduct expenses such as:
Depreciation – Use Form 4562 to recover property costs over time.
Repairs – Costs to maintain the property, but not improve it.
Operating expenses – Payments for employees, contractors, accountants, etc.
💡 Qualified Business Income Deduction (QBI):
If eligible, you may deduct 20% of your qualified rental income (see Revenue Procedure 2019-38).
Limitations and Special Rules
Uncollected rent is not deductible for cash-basis taxpayers.
Personal-use rentals (vacation homes, below-market rentals) have special rules (see Topic No. 415).
Rental losses may be limited if the rental is a passive activity (see Publication 925).
Net Investment Income Tax (NIIT) may apply to rental profits (see Topic No. 559).
For more details, refer to Publication 527 (Residential Rental Property) and Publication 946 (Depreciation Guide).