Rental Income Tax Tips and Guidelines


If you are an estate owner, then you are likely aware of your tax responsibilities as part of the job. All tax on rental income has to be reported, and you will need to deduct the associated expenses as part of your rental income. If you happen to be a taxpayer that works on a cash basis, then you report the rental income on your return each year you receive it. You will also need to deduct your rental expenses each year you pay them. If you are using accrual instead, then you will be reporting the income upon earning, instead of after receiving it and you will work on deducting the expenses whenever you incur them. Most people tend to use the cash method of personal accounting, so it is entirely up to you. The following tips on recordkeeping, tax on rental income requirements as well as information on any rental property deductions are here to help:

What is rental income? You will need to work on including the gross income of the rent amounts you receive for the purpose of income tax on rental income. You will need to report the rental income for all you properties. In addition to the payment you receive as regular rent, you will need to cover other amounts that could be considered part of it and also have to be reported for income tax on rental income.

Advance rent is the amount of money you receive before any period that amount covers. You will need to include the advance rent in your rental income for the year, no matter what kind of period it covers or what accounting type you’re using. You should consider that long before the movers end up bringing over new tenants on moving day.

Security deposits are also used as a final payment or rent in many cases, but that also makes them advance rent. This means you need to include them in your income, considering what the rental income tax rate may be as well. Never include a security deposit as part of your income when you receive it if you have plans of returning it to your tenant at the end of their lease. If you plan on keeping all of your security deposit throughout any year your tenant does not live up to the lease terms, then you will need to include the amount in the income for that year.

Payment due when you are canceling a lease will occur whenever the tenants pay to cancel leases. Money received from that is considered rent, so you will need to include it into your rental income as well.

Any expenses paid by the tenant must also be added to your rental income. These can be deducted if they fall under a deductible rental expense category. You find a good example of that in situations such as the tenants paying the sewage and water bills for your rental property and deducting that from normal rent payments. Under the terms of your lease the tenant may not have to pay this bill, so you will need to include that as rental income before they deal with moving out.

At the end of the day all of this will be a very important part of the job if you want to get tax relief on rental income. As your tenants are moving in and moving out, you will have to keep track of all expenses and finances each time the movers show up. Make sure that happens and your tax on rental income will be kept under control.

When it comes to commercial properties you will have the chance to claim machinery and plant capital allowances on some items such as garages, shops, lock ups and more. Working on the profits means you have to figure out the whole net profit as well as potential for loss on your property, except for any furnished holiday lettings. You need to add your rental income together, as well as the allowable expenses and to take away the expenses from your income as well. Work out the profit as well as the potential losses from any furnished holiday lettings separately if you have any other rentals, allowing you to make sure you have a chance to claim tax advantages for any properties that fit the bill.

You would also do well to deduct the losses from the profits and to enter the figure on the Self Assessment form. You can work on offsetting the loss against future profits by carrying them to a later year or by working on profits from other properties, assuming you have them and use them appropriately.

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