Austin Homeowners and Taxes, Part 4

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It’s time for Austin homeowners to breathe a sigh of relief. Hopefully, you got your taxes done by yesterday’s deadline. You probably don’t want anything to do with taxes at the moment, but it’s never too soon to start planning for 2011 taxes. This post is the final of a four part series on taxes and Austin homeowners as you plan for 2011.

Austin Homeowners:  Taxes and Rental Properties

There are lots of tax perks for landlords, but the trick is keeping long term plans in mind when it come to deductions related to rental properties.  Here’s the ins and outs of paying taxes for Austin homeowners with rental income:

Reporting Rental Income for Austin Homeowners

Austin homeowners must include rental income in their gross income. According to the IRS, “rental income is any payment you receive for the use or occupation of property.”

Report your rental income in the year you receive it.  This includes advance rents you may receive, regardless of the time period they cover.

You don’t include a security deposit in your income if you plan to return it to your tenant at the end of the lease. On the other hand, if you keep any part of the security deposit for reason covered in the lease then you should include the amount you keep in your income in that year.

Be careful Austin homeowners, receiving property or services in lieu of rent is considered income and should be included at “the fair market value of the property or services” in your rental income.

If you use your rental property for personal use (say, if it’s a vacation home) you must divide your expenses between rental use and personal use.

Underreporting your rental income creates what the IRS calls a “tax gap.”   The IRS doesn’t like tax gaps  (the amount paid in taxes versus the amount that should have been paid) and pays very careful attention to returns that include things like rental income.

Deducting Rental Expenses can Help Austin Homeowners Save on Taxes

Austin homeowners can deduct expenses related to renting their property from their gross rental income in the year they pay the taxes.

As a landlord, you can deduct the “ordinary and necessary expenses” for maintaining your rental property. These expenses can include interest, taxes, advertising, maintenance, utilities and insurance.

Like other tax deductions, rental property deductions have a lot of fine print.  They can include any expenses incurred while trying to rent your property, too.

Improvements to the property can be depreciated as a capital expense.  If you are getting into deductions and depreciation, you should discuss your taxes with a professional.

The IRS has helpful information and forms on taxes and rental properties here.

Image: Renjith Krishnan /

Related posts:

  1. Homeowners and Taxes, Part 3
  2. Taxes and Insurance with Home Ownership
  3. Mortgage Loans and Taxes
  4. Mortgage Loans and Taxes, Part 2
  5. Austin Home Loans and Real Estate Investments
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