TJT Certified Public Accountants

Tax Deductions For Rentals

If you are the current owner of a real estate property you are renting out, you qualify for some special tax deductions. Depending on the type of an investor you are, a passive or a real estate professional one, you will get to learn about various types of tax deductions.  


Real Estate Professionals Versus Non-Professionals

Real estate professionals have fully deductible rental losses, no matter if their losses are passive or non-passive. Non-professionals on the other hand have passive losses and they are only deductible up to the sum of $25,000 against all rental incomes. There is also a special rule that states that if a person has a modified adjusted gross income in between $100,000 and $150,000, they will no longer get the deduction. Moreover, losses that are bigger than $25,000 will be carried over to the upcoming year. In order to be considered a real estate professional, you will need to spend more than half of your working time in the construction, management, property development or something related. Plus, you will need to have spent at least 750 hours each year working on your rentals.      


Rental Money Is Taxable


The rental money is treated as taxable during the same year it was received in, and not when it was earner or when the rent was due. This means this income has to also encompass advance payments. The expenses your tenants are paying are also to be regarded as incomes, and they can be deducted as rental expenses. Trading services for rent is also a deductible type of an expense; for instance if your tenant thinks about replacing locks using a professional locksmith he finds at, you can also deduct the money. Security deposits are not taxable when planning on returning the tenants’ money. In some cases however when lease terms are broken the money can be deducted.