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7 rental income and expenses tax tips

Being a homeowner offers many benefits, not the least of which is the variety of residential tax breaks.

The hubby and I have owned five homes during our 30-plus years together. But they've all been our primary residence.

We've never had the urge to own rental property. The main reason we never added real estate to our investment mix is that taking care of one house at a time is plenty. I definitely do not want to be hassling with two or more properties simultaneously.

House for rentWe have friends who swear by the money-making power of rental real estate.

We've also seen the issues with which they've had to deal -- emergency repairs, bad tenants (both when it came to not paying rent and not taking care of the homes), no tenants for months. Good for my landlord friends for making rental properties work for their personal circumstances.

But I'm still leery, despite today's low interest rates and some apparent bargains on the Austin market.

And Tara Siegel Bernard's article Rental Investment May Seem Safer Than It Really Is in today's New York Times didn't do anything to change my mind about owning just our personal home.

Still, if you're stouter of heart than the hubby and I, go for it.

And to help you out on the tax side of rental property, today's Daily Tax Tip, straight from the Internal Revenue Service, is a look at seven rental income and expenses tax issues.

1. When to report income: Rental income is any payment you receive for the use of or occupation of property. You generally must include all amounts you receive as rent as income. And you usually must report that rental income on your tax return in the year that you actually receive it.

2. Advance rent: You might, however, receive advance rent. This 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. So if you get a rent payment for the month of January in the preceding late December, report it in the previous tax year.

3. Security deposits: 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. If, however, 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 deposit amount that you keep in your income in that year.

4. Property or services in lieu of rent: If instead of money you receive property or services 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.

5. Expenses paid by tenant: If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.

6. Rental expenses: Expenses of renting property can be deducted from your gross rental income. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income in the year you pay them. If you make certain rental property expense payments of $600 or more, in total, to a single payee, you might be required to issue Form 1099-MISC (Miscellaneous Income), to each payee and file it with the IRS.

7. Personal use of vacation home: If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.

Obviously there are many more tax considerations regarding rental property.

You can find more on tax treatment of rental property in IRS Publication 527.

And I suggest you find a tax professional with experience in dealing with rental real estate and taxes.

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