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Rental Property Tax Law

According to rental property tax law, you should include all rentals that you receive, while calculating your gross income. Rentals can be any payments received for occupation or use of your property. Rental property tax law allows quite a few deductions which can be subtracted from your total rental income.

According to rental property tax law, the property owner has to report the rental income in his filing of tax returns in the year that he actually receives it and not at the time it was earned. The actual receipt can be in cash or a deposit into the owner's bank account. Also if advance rent is received, it should be taken in the income, when it is actually received. For example if a property owner leases his property for five years for $5000, and receives the rent for two years in advance, he has to report $2000 in his first year, income statement as rental income.

Rental property tax law suggests that any security deposit which is collected and then going to be returned at the completion of the lease, need not be included in the income. If the security amount or part of it is kept because the tenant was in violation of the lease terms, then such amount has to be shown as rental income. Also if the security deposit is used to pay the last rents, then it will be termed as advance rent and recorded accordingly.

According to rental property tax law, if the tenant pays an expense on behalf of the property owner and deducts it from the rent, the owner is deemed to have received the full amount of the rent and full amount has to shown as income.

Rental property tax law, defines renting as a passive activity and this means that IRS limits your losses of your rental business to $25,000 annually. This amount of loss is for all the rental properties you own. If there is a loss excess to this amount then it is carried over to the next year, which can be deducted from the profits of that year. Rental property owners are allowed to also deduct depreciation on the property's purchase price. This will be able to cover some profit and can be shown as a loss for taxation. The rental property owner also can deduct insurance, repairs and the property tax of the building or house.

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